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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003


Commission file number 0-22085

LORAL ORION, INC.

500 Hills Drive, Bedminster, NJ
07921

Telephone: (908) 470-2300


State or Other Jurisdiction of
Incorporation:

Delaware

IRS identification number:

52-1564318

Securities registered pursuant to
Section 12(b) of the Act:

None

Securities registered pursuant to
Section 12(g) of the Act:

111⁄4% Senior Notes Due 2007

121⁄2% Senior Discount Notes Due
2007


10% Senior Notes Due 2006


The registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12 b-2).
Yes o          No þ

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [Not
Applicable]

The number of shares of common stock, par value
$.01 per share of the registrant outstanding as of
December 31, 2003 was 100, all of which were owned,
directly or indirectly, by Loral Space & Communications
Ltd. The aggregate market value of the common shares held by
affiliates was zero.



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TABLE OF CONTENTS



|                                                          |                                                                                                         |  |  |  |  |  |  | 
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                   
|                                                          | Item 1. Business                                                                                       
|                                                          | Item 2. Properties                                                                                     
|                                                          | Item 3. Legal Proceedings                                                                              
|                                                          | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                  
|                                                          | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                          | Item 6. Selected Financial Data                                                                        
|                                                          | Item 7. Managements Discussion and Analysis of Results of Operations and Financial Condition          
|                                                          | Item 7a. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                                          | Item 8. Financial Statements and Supplementary Data                                                    
|INDEPENDENT AUDITORS REPORT                             
|CONSOLIDATED BALANCE SHEETS                              
|CONSOLIDATED STATEMENTS OF OPERATIONS                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY
|CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|                                                          | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures          
|                                                          | Item 9A. Disclosure Controls and Procedures                                                            
|PART III                                                 
|                                                          | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                          | Item 11. Executive Compensation                                                                        
|                                                          | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                          | Item 13. Certain Relationships and Related Transactions                                                
|                                                          | Item 14. Principal Accountant Fees and Services                                                        
|PART IV                                                  
|                                                          | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|INDEX TO EXHIBITS                                        
|SIGNATURES                                               
|AMENDED AND RESTATED CERTIFICATE OF INCORPORATION        
|APSTAR V CONDOSAT AGREEMENT                              
|COMPUTATION OF DEFICIENCY OF EARNINGS                    
|LIST OF SUBSIDIARIES                                     
|CERTIFICATION                                            
|CERTIFICATION                                            
|CERTIFICATION                                            
|CERTIFICATION                                            



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PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Loral Orion, Inc. together with its subsidiaries
(Loral Orion, the Company,
we, our and us) owns
telecommunications satellites and has the rights to numerous
well-positioned orbital slots. Our business is managed by Loral
Skynet, a division of a subsidiary of our parent, Loral Space
& Communications Ltd. (Loral). The satellites
provide transponder capacity and platforms for use by television
and cable networks to broadcast video programming, and by
communication service providers, resellers and corporate
customers for broadband data transmission, Internet services and
other value-added communications services.

Loral Orion was incorporated on January 22,
1998 in the state of Delaware and was acquired by Loral on
March 20, 1998.

Bankruptcy Filings

On July 15, 2003, Loral, Loral Orion and
certain of its subsidiaries, including Loral Asia Pacific
Satellite (HK) Limited (Loral Asia Pacific),
(the Debtor Subsidiaries and collectively with
Loral, Loral Orion and certain other Loral subsidiaries the
Debtors), filed voluntary petitions for
reorganization under Chapter 11 of title 11 (Chapter
11) of the United States Code (the Bankruptcy
Code) in the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy Court)
(Lead Case No. 03-41710 (RDD)), Case Nos. 03-41709
(RDD) through 03-41728 (RDD), collectively, the
(Chapter 11 Cases). We continue to manage our
properties and operate our business as debtors in
possession under the jurisdiction of the Bankruptcy Court
and in accordance with the provisions of the Bankruptcy Code.

We plan to reorganize Loral Orion around our
satellites.

A creditors committee has been appointed in
the Chapter 11 Cases to represent all unsecured creditors
of the Debtors including all holders of our senior unsecured
notes, and, in accordance with the provisions of the Bankruptcy
Code, has the right to be heard on all matters that come before
the Bankruptcy Court.

As provided by the Bankruptcy Code, the Debtors
had the exclusive right to submit a plan (or plans) of
reorganization for 120 days from the date of the
Chapter 11 filing. On November 12, 2003, the
Bankruptcy Court extended this exclusive period for another
120 days. On March 16, 2004, a hearing will be held to
consider a further extension of the exclusivity period. We have
no assurance that this extension request will be granted. If we
fail to file our plan of reorganization during the exclusive
period, or if we file a plan of reorganization and the required
number of creditors do not approve our plan of reorganization
within the required period, any party in interest may
subsequently file its own plan of reorganization for the
Debtors, including Loral Orion and its Debtor Subsidiaries.

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against the Debtors, arising prior to or relating to
events which occurred prior to the Chapter 11 filing, is
generally subject to an automatic stay under Section 362 of
the Bankruptcy Code. Absent further order of the Bankruptcy
Court, a party is generally prohibited from taking any action to
recover any pre-petition claims, enforce any lien against or
obtain possession of any property from the Debtors. In addition,
pursuant to Section 365 of the Bankruptcy Code, the Debtors
may reject or assume pre-petition executory contracts and
unexpired leases. Parties whose contracts or leases are rejected
may file claims with the Bankruptcy Court.

Business Overview: Satellite
Services

We operate in one business segment, Satellite
Services. Loral Skynet, which manages and operates our business,
is a leading satellite operator. Our satellites operate in
geosynchronous earth orbit approximately 23,000 miles above the
equator. In this orbit, satellites remain in a fixed position
relative to

1



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points on the earths surface. They provide
reliable, high-bandwidth services anywhere in their coverage
areas and serve as the backbone for many forms of
telecommunications.


Customers lease transponder capacity for
distribution of network and cable television programming, for
direct-to-home (DTH) video transmission and for live
video feeds from breaking news and sporting events and broadband
data distribution. Increasingly, satellites are being used for
international communications using Internet Protocol (IP)-based
technologies, for high-speed data services for businesses
through very small aperture terminal (VSAT) networks, and
for distance learning and educational television. We operate in
a highly competitive market with other well-established
satellite operators including PanAmSat, Intelsat, SES Global,
Eutelsat and New Skies. While we also compete with fiber optic
cable and other terrestrial delivery systems, satellites are
considerably more efficient for certain applications, such as
broadcast or point-to-multipoint transmission of video and data.
For point-to-point applications, however, fiber may cost less,
so satellites compete on the basis of superior reliability, or
serve as a back-up service. Satellites also better serve areas
with inadequate terrestrial infrastructures, low-density
populations or difficult geographic terrain.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and increased competition from fiber. The downturn in the
telecommunications sector led many existing customers, hampered
by a slow-down in demand and lack of access to the capital
markets, to postpone expansion plans. Similarly, several
start-up companies that leased our satellite capacity for the
delivery of new applications failed to meet their business
objectives. Our growth will rely on our ability to differentiate
ourselves from the competition through customized product
offerings, superior customer service and successful marketing of
available capacity on our international satellites, which is
well positioned to serve regions of the world where demand is
growing.

The following chart presents details on our
international satellites:

|                      |  |               |  |                |  |                                                                                                               |  |                        |               |             |  |               
|--------------------- |  | ------------- |  | -------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------------- | ----------- |  | --------------
|                     
|                     
|                      |  | Expected     
|Satellite             |  | Location      |  | Frequency      |  | Coverage                                                                                                      |  | In Service Date        |               | End of Life
|                     
|                     
|Telstar 10/ApstarIIR  |  | 76.5(degrees) |  | E.L. C/Ku-band |  | Asia and portions of Europe, portions of Africa
    and Australia                                             |  |                        | December 1997 |             |  | September 2012
|                     
|Telstar 11            |  | 37.5(degrees) |  | W.L. Ku-band   |  | Europe, SE Canada, U.S. East of the Rockies and
    portions of Mexico                                        |  |                        | January 1995  |             |  | June 2004(1)  
|                     
|Telstar 12            |  | 15(degrees)   |  | W.L. Ku-band   |  | Eastern U.S., SE Canada, Europe, Russia, Middle
    East, North Africa, portions of South and Central America |  |                        | January 2000  |             |  | June 2016     
|                     
|Telstar 18/ApstarV(2) |  | 138(degrees)  |  | E.L. C/Ku-band |  | India, South East Asia, China, Australia and
    Hawaii                                                       |  | To be launched in 2004 |               | TBD(3)     
|                     



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During the fourth quarter of 2003, we determined
    that Telstar 11 would go out of service in June 2004, which
    is earlier than its previously expected end of life of March
    2005.                                                                                                                                                                                                                                                                                                       
|   
|(2) | We will own the Telstar 18/ Apstar V
    satellite and will initially lease 37 transponders on the
    satellite to an Asian satellite services company, in return for
    its funding a substantial portion of the project cost for
    Telstar 18. Loral SpaceCom has agreed to purchase from us
    4.75 transponders on Telstar 18/ Apstar V, together
    with a lease of an additional transponder for an approximate
    two-year period from the Telstar 18/ Apstar V
    in-service date.
|   
|(3) | To be determined after launch and in-orbit
    testing.                                                                                                                                                                                                                                                                                                                                                                                                                                           

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Agreements with Loral Skynet and
Loral

Loral Skynet and Loral provide services for us.
See Note 11 to the consolidated financial statements.

Satellite Services Performance

|                                             |  |                      |      |      |  |      |       |  |  |   |       |  
|-------------------------------------------- |  | -------------------- | ---- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                             |  |                     
|                                             |  | For the Years Ending
|                                             |  | December 31,        
|                                             |  |                     
|                                             |  | 2003                 |      | 2002 |  | 2001
|                                             |  |                      |      |      |  |     
|                                             |  |                     
|                                             |  | (in millions)       
|Total Satellite Services revenues            |  | $                    | 93.6 |      |  | $    | 109.7 |  |  | $ | 128.1 |  
|Eliminations                                 |  |                      |     |      |  |      |      |  |  |   | (19.2 | )
|                                             |  |                      |      |      |  |      |       |  |  |   |       |  
|Revenues from satellite services as reported |  | $                    | 93.6 |      |  | $    | 109.7 |  |  | $ | 108.9 |  
|                                             |  |                      |      |      |  |      |       |  |  |   |       |  
|Satellite Services Adjusted EBITDA(1)        |  | $                    | 58.7 |      |  | $    | 82.6  |  |  | $ | 85.0  |  
|                                             |  |                      |      |      |  |      |       |  |  |   |       |  



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|    |                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Consolidated Operating Results in
    Managements Discussion and Analysis of Results of
    Operations and Financial Condition for the definition of
    Adjusted EBITDA.

Satellite Services assets were
$642.4 million, $658.4 million and $1.3 billion
as of December 31, 2003, 2002 and 2001, respectively. As of
December 31, 2003 and 2002, backlog was $432 million
and $453 million, respectively.

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REGULATION

Telecommunications Regulation

As an operator of a privately owned global
satellite system, we are subject to: the regulatory authority of
the U.S. government; the regulatory authority of other countries
in which we operate; and the frequency coordination process of
the International Telecommunications Union (ITU).
Our ability to provide satellite services in a particular
country or region is subject also to the technical constraints
of our satellites, international coordination, local regulatory
approval and any limitation to those approvals.

U.S.
Regulation

The Federal Communications Commission
(FCC) regulates our U.S.-licensed satellites as well
as our non-U.S. licensed satellites authorized to operate in the
U.S. We are subject to the FCCs jurisdiction primarily for
the licensing of satellites and earth stations, avoidance of
interference with other radio stations and compliance with FCC
rules. Violations of the FCCs rules can result in various
sanctions including fines, loss of authorizations, forfeiture of
bonds, or the denial of new or renewal authorizations. We are
not regulated as a common carrier and, therefore, are not
subject to rate regulation or the obligation not to discriminate
among customers. We must pay FCC filing fees in connection with
our space station and earth station applications and annual fees
to defray the FCCs regulatory expenses We must file annual
status reports with the FCC and, to the extent Loral is deemed
to be providing interstate/international telecommunications, we
must contribute funds supporting universal service. Loral has
petitioned the FCC for exemptions from having to pay certain of
such fees and contributions. These petitions are under review by
the FCC.

Authorization
to Launch and Operate Satellites

Pursuant to satellite licensing rules issued in
2003, the FCC grants satellite authorizations on a first-come,
first-served basis to satellite operators that meet its legal
and technical qualification requirements. The FCC often receives
multiple applications to operate a satellite at a given orbital
slot. There can be no assurance that our applications will be
granted. Most satellite authorizations include specific
construction and launch milestones; failure to meet them may
result in license revocations. Under FCC licensing rules, we
must post a bond for up to $5,000,000 when we are granted a
satellite authorization. The bond may be forfeited if we fail to
meet any of the milestones for satellite construction, launch
and commencement of operation. In accordance with the current
licensing rules, the FCC will issue new satellite licenses for
an initial fifteen-year term and will provide a licensee with an
expectancy that a subsequent license will be granted
for the replacement of an authorized satellite. At the end of a
fifteen-year term, a satellite that has not been replaced, or
that has been relocated to another orbital location following
its replacement, may be allowed to continue operations for a
limited period of time subject to certain restrictions.

We have final FCC authorization for the following
existing or planned satellites which operate or will operate in
the C-band, the Ku-band, or both bands: Telstar 11 at
37.5° W.L., Telstar 12 at 15° W.L. and Orion A at
47° W.L. In addition, we have final authorization to
operate at the following orbital slots: Ka-band at
15° W.L., 67° W.L., 139° E.L., and
126.5° E.L. Certain of our authorizations are subject to
pending petitions for reconsideration or review submitted to the
FCC by third parties. The final FCC authorizations for certain
of the satellites that are not yet in orbit also do not cover
certain design changes or milestone extension requests that are
the subject of pending modification applications. There can be
no assurance that such design changes or milestone extensions
will be granted by the FCC. The failure to obtain a milestone
extension could result in the loss of the related FCC
authorization. If we are unable to obtain FCC approval to
implement its requested technical modifications for any
particular authorization, we will be obligated to operate the
related satellite in accordance with the original authorization.
We also have an application pending before the FCC at 126°
E.L. for use of the Ku-band. There can be no assurance that the
FCC will grant this application. Even if the FCC grants this
application and authorizes construction and operation of the
satellite, the FCC may require that we post a bond in the amount
of $5,000,000, all or some portion of which may be forfeited to
the United States Treasury should the FCC subsequently determine
that we failed to meet any of the milestones contained in the
authorization.

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Under the FCCs rules, an applicant may
commence satellite construction prior to receiving an
authorization to launch and operate, but must notify the FCC of
its intention to do so. The applicant undertakes construction at
its own risk. We may begin construction, but must recognize that
the FCC may not grant the application, may not assign the
satellite to its proposed orbital location, or otherwise may
reduce or eliminate the value of the construction begun on the
satellite.

Scope
of Services Authorized

In 1996, the FCC largely eliminated the
regulatory distinction between U.S. domestic satellites and
U.S.-licensed international satellites. As a result, each of our
FCC-licensed satellites may be used, to the extent technically
feasible, to provide both U.S. domestic and international
services.

Coordination
Requirements

The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the
operations of adjacent satellites. Adjacent satellite operators
must coordinate with one another to minimize frequency
conflicts. The FCC reserves the right to require that an
FCC-licensed satellite be relocated if it deems such a change to
be in the public interest.

Regulation by
Non-U.S. National Telecommunications Authorities

Foreign laws and regulatory practices governing
the provision of satellite services to licensed entities and
directly to end-users vary substantially from country to
country. Some countries may require us to confirm that we have
successfully completed technical consultation with other
satellite service providers before offering services on a given
satellite. In addition, we may be subject to varying
communications and/or broadcasting laws with respect to our
provision of international satellite services.

Foreign laws and regulatory practices may be
applied or changed in ways that may adversely affect our ability
to operate or provide service. There are no guarantees that
other countries will grant our applications to construct,
launch, operate or provide service via satellites, or extend
construction or launch milestones, or that we will be permitted
to retain or renew our authorizations. As in the U.S.,
violations of other countries laws and rules may result in
sanctions, fines, loss of authorizations or denial of
applications for new or renewal authorizations. Application and
other administrative fees may be required in other countries.
License terms for non-U.S. authorizations held by Loral vary but
generally authorize operation for at least the life of the
satellite and include rights to operate a replacement satellite.
Lorals failure to operate or maintain operation of a
satellite pursuant to a non-U.S. authorization may result in
revocation.

Many countries have liberalized their regulations
for the provision of voice, data or video services. This trend
should accelerate with the commitments by many World Trade
Organization (WTO) members, in the context of the
WTO Agreement on Basic Telecommunications Services, to open
their satellite markets to competition. Other countries,
however, have maintained strict monopoly regimes. In such
markets, the provision of service from Loral and other
U.S.-licensed satellites may be more complicated.

In addition to the orbital slots licensed by the
FCC, Loral has been assigned orbital slots by certain other
countries. Pursuant to a lease, Loral operates all of the
capacity (with the exception of one transponder) on the
Telstar 10/ Apstar IIR C/ Ku-band satellite
licensed by China and located at 76.5° E.L. We plan to
operate the extended C- and Ku-band payload on Telstar 18/
Apstar V at 138° E.L. using licenses provided by China
and Tonga, respectively.

The
ITU Frequency Coordination Process

All satellite systems are subject to ITU
frequency coordination requirements and must obtain appropriate
authority to provide service in a given territory. The required
international coordination process may limit the extent to which
all or some portion of a particular authorized orbital slot may
be used for commercial operations, with a corresponding impact
on the useable capacity of a satellite at that location.

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All of our satellite registrations are or will be
subject to the ITU coordination process. There may be more than
one ITU filing submitted for a particular orbital slot, or one
adjacent to it, thus requiring coordination between or among the
affected operators. Loral cannot guarantee successful frequency
coordination for its satellites.

Export Regulation

Commercial communication satellites and certain
related items, technical data and services, are subject to
United States export controls. These laws and regulations affect
the export of products and services to foreign launch providers,
subcontractors, insurers, customers, potential customers, and
business partners, as well as to foreign Loral employees,
foreign regulatory bodies, foreign national telecommunications
authorities and to foreign persons generally. Commercial
communications satellites and certain related items, technical
data and services are on the United States Munitions List and
are subject to the Arms Export Control Act and the International
Traffic in Arms Regulations. Export jurisdiction over these
products and services resides with the U.S. Department of State.
Other Loral exports remain subject to the jurisdiction of the
U.S. Department of Commerce, pursuant to the Export
Administration Act and the Export Administration Regulations.

U.S. Government licenses or other approvals
generally must be obtained before satellites and related items,
technical data and services are exported and may be required
before they are re-exported or transferred from one foreign
person to another foreign person. There can be no assurance that
such licenses or approvals will be granted. Also, licenses or
approvals may be granted with limitations, provisos or other
requirements imposed by the U.S. Government as a condition of
approval, which may affect the scope of permissible activity
under the license or approval.

FOREIGN OPERATIONS

Sales to foreign customers, primarily in Europe
and Asia, represented 38%, 43% and 44% of our consolidated
revenues for 2003, 2002 and 2001, respectively. With the
exception of our satellites in orbit, our long-lived assets are
primarily located in the United States. See
Managements Discussion and Analysis of Results of
Operations and Financial Condition  Commitments and
Contingencies  We face risks in conducting business
internationally for a discussion of the risks related to
operating internationally.

EMPLOYEES

As of December 31, 2003, we had no full time
employees. See Loral Skynet Agreements in Note 11 to the
consolidated financial statements.

AVAILABLE INFORMATION

Loral Orion makes available free of charge
through Lorals website its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports as
soon as reasonably practicable after such reports are filed
electronically with the SEC. Lorals Internet address is
www.loral.com. Loral.com is an inactive textual reference only,
meaning that the information contained on the website is not
part of this report and is not incorporated in this report by
reference.






|        |           
|------- | ----------
|Item 2. | Properties

We do not own or lease office space. See Loral
Skynet Agreements in Note 11 to the consolidated financial
statements.

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are subject to legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course
of business. Although the outcome of these claims cannot be
predicted with certainty, we do not believe that any of these
existing legal matters will have a material adverse effect on
our consolidated financial position or results of operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None.

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PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

All of our outstanding common stock is owned,
directly or indirectly, by Loral Space & Communications
Corporation, a wholly owned subsidiary of Loral. Therefore,
there is no public trading market for our common stock. We have
never paid dividends on our common stock. Our indenture relating
to our 10% senior notes obligations includes certain
restrictions on our ability to pay dividends or make loans to
our parent.

The Debtors will not pay any dividends or make
any distributions during the pendency of the Chapter 11
Cases. The ability of the Debtors to pay dividends or
distributions following any emergence from Chapter 11 will
depend on various factors that cannot be determined at this time.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data has been derived from, and should be read in conjunction
with, the related consolidated financial statements.

LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(in thousands)


|                              |                                                                     |                          |   |         |   |      |   |          |       |      |   |         |   |  |   |          |   |  |   |          |  
|----------------------------- | ------------------------------------------------------------------- | ------------------------ | - | ------- | - | ---- | - | -------- | ----- | ---- | - | ------- | - |  | - | -------- | - |  | - | -------- | -
|                              |                                                                     |                         
|                              |                                                                     | Years ended December 31,
|                              |                                                                     |                         
|                              |                                                                     | 2003                     |   | 2002    |   | 2001 |   | 2000     |       | 1999
|                              |                                                                     |                          |   |         |   |      |   |          |       |     
|Statement of operations data: |                                                                     |                          |   |         |   |      |   |          |       |      |   |         |   |  |   |          |   |  |   |         
|                              | Revenues                                                            |                          | $ | 93,578  |   |      | $ | 109,739  |       |      | $ | 108,945 |   |  | $ | 83,384   |   |  | $ | 35,721   |  
|                              | Operating (loss) income                                             |                          |   | (36,409 | ) |      |   | 7,271    |       |      |   | (9,036  | ) |  |   | (34,084  | ) |  |   | (45,775  | )
|                              | Loss from continuing operations                                     |                          |   | (45,832 | ) |      |   | (21,162  | )     |      |   | (76,170 | ) |  |   | (129,117 | ) |  |   | (98,732  | )
|                              | Loss from discontinued operations                                   |                          |   |        |   |      |   |         |       |      |   | (12,087 | ) |  |   | (8,301   | ) |  |   | (15,443  | )
|                              | Loss before cumulative effect of change in
    accounting principle |                          |   | (45,832 | ) |      |   | (21,162  | )     |      |   | (88,257 | ) |  |   | (137,418 | ) |  |   | (114,175 | )
|                              | Cumulative effect of change in accounting
    principle             |                          |   |        |   |      |   | (562,201 | ) (1) |      |   |        |   |  |   |         |   |  |   |         |  
|                              | Net loss                                                            |                          |   | (45,832 | ) |      |   | (583,363 | )     |      |   | (88,257 | ) |  |   | (137,418 | ) |  |   | (114,175 | )
|Other data:                   |                                                                     |                          |   |         |   |      |   |          |       |      |   |         |   |  |   |          |   |  |   |         
|                              | Deficiency of earnings to cover fixed charges                       |                          | $ | (43,802 | ) |      | $ | (5,399   | )     |      | $ | (72,181 | ) |  | $ | (128,207 | ) |  | $ | (129,423 | )

|                    |                                   |              |   |           |   |         |   |          |   |      |   |           |  |  |   |           |  |  |   |           | 
|------------------- | --------------------------------- | ------------ | - | --------- | - | ------- | - | -------- | - | ---- | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                    |                                   |             
|                    |                                   | December 31,
|                    |                                   |             
|                    |                                   | 2003(2)      |   | 2002(1)   |   | 2001(3) |   | 2000     |   | 1999
|                    |                                   |              |   |           |   |         |   |          |   |     
|Balance sheet data: |                                   |              |   |           |   |         |   |          |   |      |   |           |  |  |   |           |  |  |   |          
|                    | Total assets                      |              | $ | 642,432   |   |         | $ | 658,386  |   |      | $ | 1,279,549 |  |  | $ | 1,428,949 |  |  | $ | 1,684,287 | 
|                    | Debt, including current portion   |              |   |          |   |         |   | 951,528  |   |      |   | 998,819   |  |  |   | 989,549   |  |  |   | 953,871   | 
|                    | Other non-current liabilities     |              |   | 123,180   |   |         |   | 46,602   |   |      |   | 47,246    |  |  |   | 16,596    |  |  |   | 22,705    | 
|                    | Liabilities subject to compromise |              |   | 1,003,632 |   |         |   |         |   |      |   |          |  |  |   |          |  |  |   |          | 
|                    | Stockholders (deficit) equity    |              |   | (504,449  | ) |         |   | (399,016 | ) |      |   | 184,347   |  |  |   | 256,635   |  |  |   | 348,228   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On January 1, 2002, we recorded a charge of
    $562 million to write-off all of our goodwill as the
    cumulative effect of change in accounting principle (see
    Note 4 to the consolidated financial statements).                                                                                                                                                                           
|   
|(2) | As a result of our Chapter 11 filing, our
    debt obligations and certain other liabilities existing at
    July 15, 2003, have been classified as liabilities subject
    to compromise on our balance sheet as of December 31, 2003
    (see Note 5 to the consolidated financial statements).                                                                                                 
|   
|(3) | On December 21, 2001, Loral Orion completed
    exchange offers and consent solicitations by issuing
    $613 million principal amount of new senior notes
    guaranteed by Loral and 0.6 million five year warrants to
    purchase Loral common stock in exchange for a total of
    $841 million principal amount of Loral Orion senior notes
    due 2007 and senior discount notes due 2007.

8



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Results of Operations and Financial Condition

The following discussion and analysis should
be read in conjunction with our consolidated financial
statements included in Item 8.

We use the terms Loral Orion,
the Company, we, our, and
us in this report to refer to Loral Orion and its
subsidiaries.

Disclosure Regarding Forward-Looking
Statements

Except for the historical information
contained in the following discussion and analysis, the matters
discussed are not historical facts, but are
forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. In
addition, we or our representatives have made and may continue
to make forward-looking statements, orally or in writing, in
other contexts. These forward-looking statements can be
identified by the use of words such as believes,
expects, plans, may,
will, would, could,
should, anticipates,
estimates, project, intend,
or outlook or other variations of these words. These
statements are not guarantees of future performance and involve
risks and uncertainties that are difficult to predict or
quantify. Actual events or results may differ materially as a
result of a wide variety of factors and conditions, many of
which are beyond our control. These include the development of a
plan of reorganization, confirmation of the plan by the
Bankruptcy Court and the ability to maintain good relations with
our customers and suppliers. For a detailed discussion of these
and other factors and conditions, please refer to the
Commitments and Contingencies section below and to other
periodic reports filed with the SEC by Loral Orion. In addition,
we caution you that we operate in an industry sector where
securities values may be volatile and may be influenced by
economic and other factors beyond our control. We undertake no
obligation to update any forward-looking statements.

Overview



| |                                  
| | ---------------------------------
| | Business  Satellite
    Services

Our business is managed by Loral Skynet, a
division of a subsidiary of our parent Loral Space &
Communications Ltd. (Loral), who leases satellite
capacity on our satellites and platforms to our customers for
video and direct-to-home (DTH) broadcasting, high-speed data
distribution, Internet access, communications and networking
services. The satellite services business is capital intensive
and highly competitive. We compete with other satellite
operators and with ground-based service providers. The build-out
of a satellite fleet requires substantial investment. Once these
investments are made, however, the costs to maintain and operate
the satellites are relatively low. The upfront investments are
earned back through the leasing of transponders to customers
over the life of the satellite. Beyond construction, one of the
major cost factors is in-orbit insurance, an essential component
given the harsh and unpredictable environment in which the
satellites operate. Annual receipts from this business are
fairly predictable because they are based on an established base
of long-term customer contracts. In 2003, satellite services
sales were $93.6 million. Worldwide Satellite Services
industry sales in 2002 were approximately $7 billion,
according to available industry estimates. Backlog at
December 31, 2003 was $432 million.

The satellite services market has been
characterized in recent years by over-capacity, pricing pressure
and increased competition from fiber. The downturn in the
telecommunications sector led many existing customers, hampered
by a lack of access to the capital markets and a slow-down in
demand, to postpone expansion plans. Similarly, several start-up
companies that leased our satellite capacity for the delivery of
new applications failed to meet their business objectives. Our
growth will rely on our ability to differentiate ourselves from
the competition through customized product offerings, superior
customer service and successful marketing of available capacity
on our satellites, which is well positioned to serve regions of
the world where demand is growing.

9



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| |                       
| | ----------------------
| | Bankruptcy Proceedings

We operate in extremely competitive markets
characterized in recent years by over-capacity and pricing
pressures brought on by the global economic downturn. Our
existing and potential customers, having limited access to the
capital markets, postponed or reduced the scope of their planned
satellite-based applications and services. This resulted in an
excess of transponder capacity. In the face of these pressures,
we further increased our emphasis on cash conservation over the
last 18 months, reducing operating expenses and closely
monitoring capital expenditures. The sustained and unprecedented
decline in demand for our satellite services, however,
exacerbated our already strained financial condition. On
July 15, 2003, Loral, Loral Orion and certain of their
subsidiaries, including Loral Asia Pacific Satellite (HK)
Limited, filed voluntary petitions for reorganization under
Chapter 11. As a result of our Chapter 11 filing, all
of our prepetition debt obligations aggregating
$920 million at December 31, 2003 ($699 million
principal amount), including our 10% senior notes obligations,
have been accelerated. On July 15, 2003, we suspended
interest payments on all of our senior unsecured notes, with a
principal amount of $699 million.

For the duration of the bankruptcy proceedings,
our business is subject to risks and uncertainties of bankruptcy
(see Commitments and Contingencies section below for
examples of such risks and uncertainties).

Future
Outlook

We intend to reorganize around our satellites,
which cover regions with high growth potential, such as South
East Asia and South America, where the ground infrastructure is
inadequate to support increased demand. We consider these
operations to be a viable foundation for the further expansion
of our company. We anticipate using excess cash flows from
operations to populate our available slots with satellites to
meet market demand. We are in the process now of completing our
long-term business plan. We believe the plan is sound and that
we will not require any additional financing to fund operations.
At this time, however, it is impossible to predict accurately
the effect of the Chapter 11 reorganization on us, when we
may emerge from Chapter 11 and what our capital structure
will be. The rights and claims of various creditors and security
holders will be determined by our plan of reorganization. No
assurance can be given as to what values, if any, will be
ascribed in the bankruptcy proceedings to each of these
constituencies. Accordingly, we urge that appropriate caution be
exercised with respect to existing and future investments in any
of such securities and claims.

Critical success factors for us include Loral
Skynet maintaining its reputation of reliability, quality and
superior customer service. During reorganization, in particular,
these factors are vital to securing new customers and retaining
current ones. In addition, we must continue to contain costs and
maximize the efficiency of our operations. Loral Skynet is
focused on increasing the capacity utilization of our satellites.

See Part 1, Item 1, for a complete
description of our business and our Chapter 11 Cases.

Consolidated Operating Results

Please refer to Critical Accounting Matters
further on in this section.

The accompanying consolidated financial
statements have been prepared assuming the Company, in its
current structure, will continue as a going concern. However,
the factors mentioned above, among other things, raise
substantial doubt about our ability to continue as a going
concern. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty. The ability of the Company to continue as a going
concern is dependent on a number of factors including, but not
limited to, developing a plan of reorganization, confirmation of
the plan by the Bankruptcy Court and maintaining good relations
with our customers. If a plan of reorganization is not confirmed
and implemented, we may be forced to liquidate under applicable
provisions of the Bankruptcy Code. There can be no assurance of
the level of recovery that our creditors would receive in the
event of a liquidation. The consolidated financial statements do
not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or
the amounts and classification of liabilities if we were forced
to liquidate.

The common definition of EBITDA is Earnings
Before Interest, Taxes, Depreciation and Amortization. In
evaluating financial performance, we use revenues and operating
income (loss) from continuing

10



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##### Table of Contents



operations before depreciation and amortization
and reorganization expenses due to bankruptcy (Adjusted
EBITDA) as a measure of a segments profit or loss.
Adjusted EBITDA is equivalent to the common definition of EBITDA
before reorganization expenses due to bankruptcy, gain on debt
exchanges, loss from discontinued operations and cumulative
effect of change in accounting principle, net of tax. Adjusted
EBITDA should be used in conjunction with GAAP financial
measures and is not presented as an alternative to cash flow
from operations as a measure of our liquidity or as an
alternative to net income as an indicator of our operating
performance.


We believe the use of Adjusted EBITDA along with
GAAP financial measures enhances the understanding of our
operating results and is useful to investors in comparing
performance with competitors, estimating enterprise value and
making investment decisions. Adjusted EBITDA allows investors to
compare operating results of competitors exclusive of
depreciation and amortization, a useful tool given the
significant variation that can result from the timing of capital
expenditures, the amount of intangible assets recorded and the
differences in assets lives. Adjusted EBITDA as used here
may not be comparable to similarly titled measures reported by
other companies. We also use Adjusted EBITDA to evaluate
operating performance, to allocate resources and capital, and to
evaluate future growth opportunities. See the table below for
reconciliations of Adjusted EBITDA to net loss.

The following discussion of revenues and Adjusted
EBITDA reflects the results of our operating businesses for
2003, 2002 and 2001. The balance of the discussion relates to
our consolidated results, unless otherwise noted. Our business
has been adversely affected by the global economic downturn,
which has caused a delay in demand for new telecommunications
applications and services.

Revenues from Continuing Operations (in
millions):

|                   |  |                          |      |      |  |      |       |  |  |   |       |  
|------------------ |  | ------------------------ | ---- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                   |  |                         
|                   |  | Years ended December 31,
|                   |  |                         
|                   |  | 2003                     |      | 2002 |  | 2001
|                   |  |                          |      |      |  |     
|Satellite Services |  | $                        | 93.6 |      |  | $    | 109.7 |  |  | $ | 128.1 |  
|Eliminations(1)    |  |                          |     |      |  |      |      |  |  |   | (19.2 | )
|                   |  |                          |      |      |  |      |       |  |  |   |       |  
|Revenues           |  | $                        | 93.6 |      |  | $    | 109.7 |  |  | $ | 108.9 |  
|                   |  |                          |      |      |  |      |       |  |  |   |       |  

Adjusted EBITDA (in millions):

|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  
|------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                                        |  |                         
|                                                        |  | Years ended December 31,
|                                                        |  |                         
|                                                        |  | 2003                     |       | 2002 |  | 2001
|                                                        |  |                          |       |      |  |     
|Satellite Services                                      |  | $                        | 58.7  |      |  | $    | 82.6   |   |  | $ | 104.6 |  
|Eliminations(1)                                         |  |                          |      |      |  |      |       |   |  |   | (19.6 | )
|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  
|Adjusted EBITDA                                         |  |                          | 58.7  |      |  |      | 82.6   |   |  |   | 85.0  |  
|Depreciation and amortization                           |  |                          | 89.5  |      |  |      | 75.3   |   |  |   | 94.0  |  
|Reorganization expenses due to bankruptcy               |  |                          | 5.6   |      |  |      |       |   |  |   |      |  
|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  
|Operating (loss) income                                 |  |                          | (36.4 | )    |  |      | 7.3    |   |  |   | (9.0  | )
|Interest income                                         |  |                          |      |      |  |      | 0.6    |   |  |   | 0.6   |  
|Interest expense                                        |  |                          | (6.5  | )    |  |      | (13.0  | ) |  |   | (98.3 | )
|Gain on debt exchanges                                  |  |                          |      |      |  |      |       |   |  |   | 34.5  |  
|Income tax provision                                    |  |                          | (2.9  | )    |  |      | (16.1  | ) |  |   | (4.0  | )
|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  
|Loss from continuing operations                         |  |                          | (45.8 | )    |  |      | (21.2  | ) |  |   | (76.2 | )
|Loss from discontinued operations, net of tax           |  |                          |      |      |  |      |       |   |  |   | (12.1 | )
|Cumulative effect of change in accounting
    principle |  |                          |      |      |  |      | (562.2 | ) |  |   |      |  
|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  
|Net loss                                                |  | $                        | (45.8 | )    |  | $    | (583.4 | ) |  | $ | (88.3 | )
|                                                        |  |                          |       |      |  |      |        |   |  |   |       |  



---



|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(1) | Represents sales to our discontinued operation
    (formerly the data business).

11



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##### Table of Contents



2003 Compared with 2002 and 2001

Revenues from
Satellite Services

|                                             |  |                          |      |                       |  |      |       |               |  |               |       |   |  |  |     |    |  |  |      |   
|-------------------------------------------- |  | ------------------------ | ---- | --------------------- |  | ---- | ----- | ------------- |  | ------------- | ----- | - |  |  | --- | -- |  |  | ---- | --
|                                             |  |                          |      |                      
|                                             |  | Years ended December 31, |      | % Increase (Decrease)
|                                             |  |                          |      |                      
|                                             |  | 2003                     |      | 2002                  |  | 2001 |       | 2003 vs. 2002 |  | 2002 vs. 2001
|                                             |  |                          |      |                       |  |      |       |               |  |              
|                                             |  |                          |      |                       |  |     
|                                             |  | (in millions)            |      |                       |  |     
|Revenues from satellite services             |  | $                        | 93.6 |                       |  | $    | 109.7 |               |  | $             | 128.1 |   |  |  | (15 | )% |  |  | (14  | )%
|Eliminations                                 |  |                          |     |                       |  |      |      |               |  |               | (19.2 | ) |  |  |    |    |  |  | (100 | )%
|                                             |  |                          |      |                       |  |      |       |               |  |               |       |   |  |  |     |    |  |  |      |   
|Revenues from satellite services as reported |  | $                        | 93.6 |                       |  | $    | 109.7 |               |  | $             | 108.9 |   |  |  | (15 | )% |  |  | 1    | % 
|                                             |  |                          |      |                       |  |      |       |               |  |               |       |   |  |  |     |    |  |  |      |   

Revenues from Satellite Services decreased
$16.1 million in 2003 as compared to 2002 primarily due to
decreases in prices of $31.0 million and customer
termination fees of $0.3 million, offset by increased
transponder utilization of $15.2 million. Revenues from
Satellite Services decreased $18.4 million in 2002 as
compared to 2001 primarily due to lower revenue from the
Companys former data service business of
$10.2 million and reduced transponder utilization of
$13.2 million, offset by an increase in transponder pricing
of $2.5 million and higher customer lease termination fees
of $2.5 million. Eliminations of $19.2 million in 2001
consist of revenues from leasing transponder capacity to the
Companys former data service business. As a result of the
above, revenues from Satellite Services as reported decreased
$16.1 million in 2003 and increased $0.8 million in
2002, as compared to the respective prior year.

Cost of
Satellite Services

|                                                  |  |                          |       |                       |  |      |      |               |  |               |       |   |  |  |    |   |  |  |     |   
|------------------------------------------------- |  | ------------------------ | ----- | --------------------- |  | ---- | ---- | ------------- |  | ------------- | ----- | - |  |  | -- | - |  |  | --- | --
|                                                  |  |                          |       |                      
|                                                  |  | Years ended December 31, |       | % Increase (Decrease)
|                                                  |  |                          |       |                      
|                                                  |  | 2003                     |       | 2002                  |  | 2001 |      | 2003 vs. 2002 |  | 2002 vs. 2001
|                                                  |  |                          |       |                       |  |      |      |               |  |              
|                                                  |  |                          |       |                       |  |     
|                                                  |  | (in millions)            |       |                       |  |     
|Cost of Satellite Services                        |  | $                        | 110.7 |                       |  | $    | 91.4 |               |  | $             | 107.2 |   |  |  | 21 | % |  |  | (15 | )%
|% of revenues from satellite services as reported |  |                          | 118   | %                     |  |      | 83   | %             |  |               | 98    | % |  |  | 42 | % |  |  | (15 | )%

The increase of $19.3 million in 2003 as
compared to 2002 was primarily due to (i) higher
depreciation of $14.3 million for our Telstar 11
satellite which we determined in the fourth quarter of 2003,
would go out of service in June 2004 (earlier than its
previously expected end of life of March 2005), (ii) losses
on equipment disposals of $2.2 million in 2003,
(iii) increased costs of $2.3 million allocated from
Loral Skynet due to an amendment to the agreement to reflect a
price increase and (iv) a net increase in insurance costs
of $0.8 million, resulting from a higher premium on renewal
and changes to coverage requirements for Telstar 10/
Apstar IIR, offset by the non-renewal of insurance for
Telstar 11 in 2003. The decrease of $15.8 million in 2002
as compared to 2001 was primarily due to lower depreciation and
amortization of $18.7 million, ($15.5 million of
amortization expense for goodwill resulting from the adoption of
SFAS No. 142 on January 1, 2002 (as we wrote-off our
remaining balance of goodwill, see Note 4 to the consolidated
financial statements) and the timing of assets placed into
service of $3.2 million). This was offset by increased
insurance costs of $2.7 million, resulting from renewing
the insurance for Telstar 10/ Apstar IIR after
September 11, 2001. The increases in cost of satellite
services as a percentage of revenues in 2003 as compared to
2002, was affected by reduced revenues. The decrease in cost of
satellite services as a percentage of revenues in 2002 and 2001
was primarily due to reduced amortization expense for goodwill.

Selling, General
and Administrative Expenses

|                                                  |  |                          |      |                       |  |      |      |               |  |               |      |   |  |  |    |   |  |  |   |  
|------------------------------------------------- |  | ------------------------ | ---- | --------------------- |  | ---- | ---- | ------------- |  | ------------- | ---- | - |  |  | -- | - |  |  | - | -
|                                                  |  |                          |      |                      
|                                                  |  | Years ended December 31, |      | % Increase (Decrease)
|                                                  |  |                          |      |                      
|                                                  |  | 2003                     |      | 2002                  |  | 2001 |      | 2003 vs. 2002 |  | 2002 vs. 2001
|                                                  |  |                          |      |                       |  |      |      |               |  |              
|                                                  |  |                          |      |                       |  |     
|                                                  |  | (in millions)            |      |                       |  |     
|Selling, general and administrative expenses      |  | $                        | 13.8 |                       |  | $    | 11.1 |               |  | $             | 10.8 |   |  |  | 24 | % |  |  | 3 | %
|% of revenues from satellite services as reported |  |                          | 15   | %                     |  |      | 10   | %             |  |               | 10   | % |  |  | 50 | % |  |  |  |  

The increase of $2.7 million in 2003 as
compared to 2002 was primarily due to higher bad debt expense of
$1.2 million and higher expenses of $1.2 million
allocated from Loral Skynet. The increase of $0.3 million in

12



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##### Table of Contents



2002 as compared to 2001, was primarily due to
Loral initiating the allocation of corporate management expenses
to its subsidiaries and divisions, including $3.1 million
to Loral Orion, offset by lower bad debt expense of
$1.0 million and lower allocated expenses from Loral Skynet
of $1.8 million.


Reorganization
Expenses Due to Bankruptcy

Reorganization expenses due to bankruptcy in 2003
were $5.6 million for the period from July 15, 2003
(date of filing) to December 31, 2003, which includes the
allocation from Loral of professional fees of $5.5 million
associated with bankruptcy services and employee retention costs
of $0.3 million, offset by interest and investment income
earned of $0.2 million (which represents the interest
earned subsequent to filing bankruptcy).

Interest and
Investment Income

|                               |  |                          |   |                       |  |      |     |               |  |               |     |  |  |  |      |    |  |  |     |   
|------------------------------ |  | ------------------------ | - | --------------------- |  | ---- | --- | ------------- |  | ------------- | --- |  |  |  | ---- | -- |  |  | --- | --
|                               |  |                          |   |                      
|                               |  | Years ended December 31, |   | % Increase (Decrease)
|                               |  |                          |   |                      
|                               |  | 2003                     |   | 2002                  |  | 2001 |     | 2003 vs. 2002 |  | 2002 vs. 2001
|                               |  |                          |   |                       |  |      |     |               |  |              
|                               |  |                          |   |                       |  |     
|                               |  | (in millions)            |   |                       |  |     
|Interest and investment income |  | $                        |  |                       |  | $    | 0.6 |               |  | $             | 0.7 |  |  |  | (100 | )% |  |  | (14 | )%

The decrease in interest and investment income in
2003 as compared to 2002 was principally due to lower average
cash balances prior to filing for bankruptcy and interest income
earned on available cash balances subsequent to filing for
bankruptcy being reclassified into reorganization expenses.

Interest
Expense

|                                          |  |                          |      |                       |  |      |      |               |  |               |      |  |  |  |     |    |  |  |     |   
|----------------------------------------- |  | ------------------------ | ---- | --------------------- |  | ---- | ---- | ------------- |  | ------------- | ---- |  |  |  | --- | -- |  |  | --- | --
|                                          |  |                          |      |                      
|                                          |  | Years ended December 31, |      | % Increase (Decrease)
|                                          |  |                          |      |                      
|                                          |  | 2003                     |      | 2002                  |  | 2001 |      | 2003 vs. 2002 |  | 2002 vs. 2001
|                                          |  |                          |      |                       |  |      |      |               |  |              
|                                          |  |                          |      |                       |  |     
|                                          |  | (in millions)            |      |                       |  |     
|Interest cost before capitalized interest |  | $                        | 7.4  |                       |  | $    | 13.3 |               |  | $             | 98.3 |  |  |  | (44 | )% |  |  | (86 | )%
|Capitalized interest                      |  |                          | (0.9 | )                     |  |      | (0.3 | )             |  |               |     |  |  |  | 200 | %  |  |  | N/A |   
|                                          |  |                          |      |                       |  |      |      |               |  |               |      |  |  |  |     |    |  |  |     |   
|Interest expense                          |  | $                        | 6.5  |                       |  | $    | 13.0 |               |  | $             | 98.3 |  |  |  | (50 | )% |  |  | (87 | )%
|                                          |  |                          |      |                       |  |      |      |               |  |               |      |  |  |  |     |    |  |  |     |   

Interest cost before capitalized interest
decreased $5.9 million in 2003 as compared to 2002, which
was primarily attributable to the fact that subsequent to Loral
Orions voluntary petitions for reorganization on
July 15, 2003, we stopped recognizing and paying interest
on all of our debt obligations. Interest cost before capitalized
interest decreased $85.0 million in 2002 as compared to
2001, primarily because we did not recognize any interest
expense on our 10% senior notes issued in connection with the
exchange offers completed in December 2001 for our senior notes
and our senior discount notes. Interest expense on our 10%
senior notes was fully offset by amortization of the deferred
gain on the exchange offers (see Note 6 to the consolidated
financial statements). Capitalized interest increased
$0.6 million in 2003 and $0.3 million in 2002 as
compared to the respective prior year, primarily due to higher
satellite under construction balances for Telstar 18/
Apstar V. As a result of the above, interest expense
decreased $6.5 million and $85.3 million,
respectively, as compared to the respective prior year.

Gain on Debt
Exchange

During December 2001, we recorded a gain of
$34.5 million related to our debt exchanges (see Note 6 to
the consolidated financial statements).

Income Tax
Provision

During 2003, we continued to maintain a 100%
valuation allowance against our net deferred tax assets and
recorded no benefit for our loss. For 2003, we recorded an
income tax provision of $2.9 million on a pre-tax loss of
$42.9 million primarily related to the tax sharing
agreement with Loral Space & Communications
Corporation. This compares to income tax provisions for 2002 and
2001 of $16.1 million and $4.0 million on pre-tax
losses of $5.1 million and $72.2 million, respectively.

13



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At December 31, 2002, we recorded a 100%
valuation allowance against our net deferred tax assets under
the criteria of SFAS No. 109, Accounting for Income Taxes.
The increase in tax expense in 2002 when compared to 2003 and
2001 was primarily attributable to an increase in the deferred
tax valuation allowance. See Critical Accounting Matters.

Loss from
Discontinued Operation

Represents our former data business that was sold
in December 2001. See Note 12 to the consolidated financial
statements.

Cumulative
Effect of Change in Accounting Principle

On January 1, 2002, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets, which
resulted in our recording a charge to write-off all of our
goodwill of $562 million as the cumulative effect of change
in accounting principle. See Note 4 to the consolidated
financial statements.

Satellite Services Performance

|                                             |  |                          |       |      |  |      |       |            |  |      |       |   |  |  |      |    |  |  |     |   
|-------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | ---------- |  | ---- | ----- | - |  |  | ---- | -- |  |  | --- | --
|                                             |  |                          |       |      |  |      |       |           
|                                             |  |                          |       |      |  |      |       | % Increase
|                                             |  |                          |       |      |  |      |       | (Decrease)
|                                             |  |                          |       |     
|                                             |  | Years ended December 31, |       | 2003 |  | 2002
|                                             |  |                          |       | vs.  |  | vs. 
|                                             |  | 2003                     |       | 2002 |  | 2001 |       | 2002       |  | 2001
|                                             |  |                          |       |      |  |      |       |            |  |     
|                                             |  |                          |       |      |  |     
|                                             |  | (in millions)            |       |      |  |     
|Satellite Services revenues                  |  | $                        | 93.6  |      |  | $    | 109.7 |            |  | $    | 128.1 |   |  |  | (15  | %) |  |  | (14 | %)
|Cost of Satellite Services                   |  |                          | 110.7 |      |  |      | 91.4  |            |  |      | 126.4 |   |  |  | 21   | %  |  |  | (28 | %)
|Selling, general and administrative expenses |  |                          | 13.7  |      |  |      | 11.0  |            |  |      | 10.7  |   |  |  | 24   | %  |  |  | 3   | % 
|                                             |  |                          |       |      |  |      |       |            |  |      |       |   |  |  |      |    |  |  |     |   
|Operating (loss) income                      |  |                          | (30.8 | )    |  |      | 7.3   |            |  |      | (9.0  | ) |  |  | (522 | %) |  |  | 181 | % 
|Add: depreciation and amortization           |  |                          | 89.5  |      |  |      | 75.3  |            |  |      | 94.0  |   |  |  | 19   | %  |  |  | (20 | %)
|                                             |  |                          |       |      |  |      |       |            |  |      |       |   |  |  |      |    |  |  |     |   
|Adjusted EBITDA                              |  | $                        | 58.7  |      |  | $    | 82.6  |            |  | $    | 85.0  |   |  |  | (29  | %) |  |  | (3  | %)
|                                             |  |                          |       |      |  |      |       |            |  |      |       |   |  |  |      |    |  |  |     |   

See Revenues from Satellite Services, Cost of
Satellite Servicesand Selling, General and
Administrative Expenses,for an explanation of the changes
in these items for the periods presented. The net increase in
depreciation and amortization expense of $14.2 million in
2003 as compared to 2002, was primarily due to higher
depreciation on our Telstar 11 satellite which we determined in
the fourth quarter of 2003, would go out of service in June 2004
(earlier than its previously expected end of life of March
2005). The decrease in depreciation and amortization expense of
$18.7 million in 2002 as compared to 2001 was primarily due
to a $15.5 million decrease in amortization expense for
goodwill resulting from the adoption of SFAS No. 142. As a
result of the above, Adjusted EBITDA decreased
$23.9 million in 2003 and decreased $2.4 million in
2002 as compared to the respective prior year.

As of December 31, 2003, we had three
satellites in-orbit and one under construction (see Note 9 to
the consolidated financial statements). At December 31, 2003 and
2002, our backlog totaled $432 million and
$453 million, respectively. Approximately $70 million
of the 2003 backlog is expected to be realized in 2004. Capital
expenditures were approximately $20 million in 2003 and are
expected to decrease in 2004, due to the planned launch of our
Telstar 18/ Apstar V satellite in 2004.

Critical Accounting Matters

The preparation of financial statements in
conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the amounts of
revenues and expenses reported for the period. Actual results
could differ from estimates.

14



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| |             
| | ------------
| | Depreciation

Depreciation is provided for on the straight-line
method for satellites over the estimated useful life of the
satellite, which is determined by engineering analyses performed
at the satellites in-service date and re-evaluated
periodically. A decrease in the useful life of a satellite would
result in increased depreciation expense. See Note 9 to the
Consolidated Financial Statements regarding the change in the
life of Telstar 11.



| |            
| | -----------
| | Receivables

We are required to estimate the collectibility of
our receivables. A considerable amount of judgment is required
in assessing the collectibility of these receivables, including
the current creditworthiness of each customer and related aging
of the past due balances. Charges for bad debts recorded to the
income statement on receivables during 2003 and 2002 were
$1.9 million and $0.7 million, respectively. At
December 31, 2003 and 2002, receivables were net of
allowances for doubtful accounts of $2.5 million and
$1.1 million, respectively. We evaluate specific accounts
when we become aware of a situation where a customer may not be
able to meet its financial obligations due to a deterioration of
its financial condition, credit ratings or bankruptcy. The
reserve requirements are based on the best facts available to us
and are re-evaluated periodically.

Taxation

We file our U.S. federal income tax return on a
consolidated basis with our parent company, Loral
Space & Communications Corporation. Pursuant to annual
tax sharing agreements with our parent, we are entitled to
reimbursement for the parents use of our net operating
losses. We have been credited with cumulative reimbursements of
$45.8 million through December 31, 2003 (see
Note 11 to the consolidated financial statements).

We use the liability method in accounting for
taxes whereby income taxes are recognized during the year in
which transactions enter into the determination of financial
statement income or loss. Deferred taxes reflect the future tax
effect of temporary differences between the carrying amount of
assets and liabilities for financial and income tax reporting
and are measured by applying statutory tax rates in effect for
the year during which the differences are expected to reverse.

Realization of the net deferred tax assets is
dependent on our ability to generate future taxable income and
our utilization of tax planning strategies. We assess the
recoverability of our loss carryforwards and other deferred tax
assets on a quarterly basis and, based upon this analysis,
record a valuation allowance to the extent recoverability does
not satisfy the more likely than not recognition
criteria in SFAS No. 109. Based upon this analysis, we
concluded during the fourth quarter of 2002 that, due to
insufficient positive evidence substantiating recoverability, a
100% valuation allowance should be established for the entire
balance of our net deferred tax assets. During 2003, we recorded
no benefit for our loss and continued to maintain the valuation
allowance, increasing the reserve by $9.0 million to a
balance of $186.4 million.

We will maintain the valuation allowance until
sufficient positive evidence exists to support its reversal.
When we determine that we will be able to realize all or part of
the benefit from our deferred tax assets, reversal of the
valuation allowance will increase income in the period such
determination is made.

Contingencies

Contingencies by their nature relate to
uncertainties that require management to exercise judgment both
in assessing the likelihood that a liability has been incurred
as well as in estimating the amount of potential loss, if any.
The most important contingencies affecting our financial
statements are detailed below under Commitments and
Contingencies.

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##### Table of Contents



Liquidity and Capital Resources

Cash and Available Credit

As of December 31, 2003, we had
$47 million of cash. Cash flow from Satellite Services is
fairly predictable because it is based on an existing base of
long-term customer contracts.

Contractual
Obligations(1):

|                                   |  |       |         |                        |  |             |         |             |  |               |       |  |  |   |        |  |  |   |   | 
|---------------------------------- |  | ----- | ------- | ---------------------- |  | ----------- | ------- | ----------- |  | ------------- | ----- |  |  | - | ------ |  |  | - | - | 
|                                   |  |       |         |                       
|                                   |  |       |         | Payments Due by Period
|                                   |  |       |         |                       
|                                   |  | Total |         | 1 Year                 |  | 2 - 3 Years |         | 4 - 5 Years |  | After 5 Years
|                                   |  |       |         |                        |  |             |         |             |  |              
|Debt(2)                            |  | $     | 919,977 |                        |  | $           | 919,977 |             |  | $             |      |  |  |   |        |  |  |   |   | 
|Other long-term obligations(3)     |  |       | 43,800  |                        |  |             | 2,400   |             |  |               | 4,800 |  |  | $ | 36,600 |  |  | $ |  | 
|                                   |  |       |         |                        |  |             |         |             |  |               |       |  |  |   |        |  |  |   |   | 
|Total contractual cash obligations |  | $     | 963,777 |                        |  | $           | 922,377 |             |  | $             | 4,800 |  |  | $ | 36,600 |  |  | $ |  | 
|                                   |  |       |         |                        |  |             |         |             |  |               |       |  |  |   |        |  |  |   |   | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Pursuant to Section 365 of the Bankruptcy
    Code, Loral Orion and its Debtor Subsidiaries may reject or
    assume prepetition executory contracts and unexpired leases, and
    parties affected by rejections of these contracts or leases may
    file claims with the Bankruptcy Court which will be addressed in
    the context of the Chapter 11 Cases. The above table
    includes amounts that are subject to compromise under a plan of
    reorganization including all of our debt. See Note 5 to the
    consolidated financial statements for further detail on
    liabilities subject to compromise.                                        
|   
|(2) | Includes cash obligations for principal payments
    and the $214 million difference in the carrying value and
    principal amount for our 10% senior notes that was amortized
    over the life of the notes. As a result of our Chapter 11
    filing on July 15, 2003, all of our debt obligations, with
    an aggregate principal amount of $699 million, have been
    accelerated. We have also stopped accruing and paying interest
    on all of our debt obligations. This has significantly reduced
    our cash interest payments in 2003. See Note 6 to the
    consolidated financial statements for further detail on our debt
    obligations.
|   
|(3) | Represents amounts due to APT for our share of
    the project cost of Telstar 18/ Apstar V (included in
    long-term liabilities) and satellite incentive payments
    (included in liabilities subject to compromise).                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |                                              
| | ---------------------------------------------
| | Net Cash Provided by Operating
    Activities

Net cash provided by operating activities for the
year ended December 31, 2003 was $55 million. This was
primarily due to net income as adjusted for non-cash items of
$54 million.

Net cash provided by operating activities for the
year ended December 31, 2002 was $88 million. This was
primarily due to net income as adjusted for non-cash items of
$88 million.



| |                                          
| | -----------------------------------------
| | Net Cash Used in Investing
    Activities

Net cash used in investing activities was
$20 million and $18 million for the years ended
December 31, 2003 and 2002, respectively, primarily for
capital expenditures for the construction of our Telstar 18/
Apstar V satellite and related equipment.



| |                                          
| | -----------------------------------------
| | Net Cash Used in Financing
    Activities

Net cash used in financing activities was
$31 million and $46 million for the years ended
December 31, 2003 and 2002, respectively, resulting from
interest payments on our 10% senior notes.

Related Party Transactions

See Note 11 to the consolidated financial
statements for details of our related party
transactions.

Commitments and Contingencies

Our business and operations are subject to a
significant number of risks, the most significant of which are
summarized below.

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I. Financial Risk
Factors

We filed for bankruptcy protection on
July 15, 2003 and are subject to its associated risks and
uncertainties.

The Chapter 11 Cases could adversely affect
relationships with our customers. This in turn could adversely
affect the going concern value of our business and of its
assets, particularly if the Chapter 11 Cases are
protracted. Also, transactions outside the ordinary course of
business will be subject to the prior approval of the Bankruptcy
Court which may limit our ability to respond to certain market
events or take advantage of certain market opportunities, and,
as a result, our operations could be materially adversely
affected.

As a result of the Chapter 11 Cases, all
$699 million principal amount of our debt has been
accelerated. During the pendency of the Chapter 11 Cases,
we have not paid, and will not pay, interest on our debt.
Although we and our Debtor Subsidiaries expect to file a plan or
plans of reorganization that provide for emergence from
Chapter 11 reorganization sometime in 2004, we cannot now
describe the components or features of the plan, including
whether the plan will provide for creditors to be paid in whole
or in part or whether consideration they will receive will
consist of cash, debt, or some combination thereof. In addition,
there can be no assurance that we will be able to propose a
plan, obtain court approval of any plan we propose, obtain
acceptances from the number of creditors necessary to confirm a
plan, or actually confirm and consummate a plan.

Our emergence from Chapter 11
reorganization depends on the success of our business plan and
our ability to generate enough cash to pay our obligations and
fund our operations.

We intend to reorganize around our satellites. As
discussed in our Overview, we operate in highly
competitive markets. Our overall financial condition and
outstanding debt are factors that potential customers will
consider prior to contracting for satellite services. Our
success depends on our ability to respond to these financial
concerns and perform on a cost-effective and timely basis.

There may be certain tax implications upon our
emergence from Chapter 11 reorganization.

As of December 31, 2003, we had net
operating loss carryforwards, or NOLs, of approximately
$438 million that can be used to offset future taxable
income. However, our ability to use these NOLs may be impaired
in the future depending upon various factors relating to our
plan of reorganization, such as how creditor claims are
satisfied, how the equity interests in Loral as a reorganized
company are distributed, the extent of any capital infusion by
new investors, and Lorals value and our level of debt at
the time we emerge from bankruptcy, which are all unknown at
this time. Moreover, if it is determined that Loral experienced
an ownership change during the three-year period
preceding our emergence from bankruptcy, future use of these
NOLs would be severely limited. An ownership change would be
triggered if shareholders owning 5% or more of Lorals
total equity value change their holdings during this three-year
period by more than 50% in the aggregate. On August 22,
2003, the Bankruptcy Court entered an order to assist us in
protecting our NOLs by establishing procedures that would
require certain proposed acquirers of Debtors securities,
including our senior unsecured notes, to notify us about a
prospective acquisition, thus giving us an opportunity to file
an objection with the Bankruptcy Court if we deem necessary.
There is no guarantee that the Bankruptcy Court will rule in our
favor in the event of a dispute between a proposed acquirer and
us. A ruling against us could jeopardize a substantial portion
of our NOLs.

II. Operational Risk
Factors

Launch failures have delayed some of our
operations in the past and may do so again in the
future.

We depend on third parties, in the United States
and abroad, to launch our satellites. Satellite launches are
risky, and some launch attempts have ended in complete or
partial failure. We ordinarily insure against launch failures,
but at considerable cost. The cost and the availability of
insurance vary depending on market conditions and the launch
vehicle used. Our insurance typically does not cover business
interruption; launch failures may therefore result in uninsured
economic losses. Replacing a lost satellite typically requires
at least 24 months from contract execution to launch.

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After launch, our satellites remain vulnerable
to in-orbit failures which may result in reduced revenues and
profits.

In-orbit damage to or loss of a satellite before
the end of its expected life results from various causes, some
random, including component failure, degradation of solar
panels, loss of power or fuel, inability to maintain the
satellites position, solar and other astronomical events,
and space debris. Satellites are built with redundant components
to permit their continued operation in case of a component
failure. One of our satellites is currently operating using a
back-up component because of the failure of a primary component.
If this back-up component fails and the primary component cannot
be restored, this satellite could lose capacity or be a total
loss resulting in a loss of revenues and profits. Repair of
satellites in space is not feasible.

It may be difficult to obtain full insurance
coverage for satellites that have, or are part of a family of
satellites that has, experienced problems in the past.

We cannot assure that, upon the expiration of an
insurance policy, we will be able to renew the policy on terms
acceptable to us. Insurers may require either exclusions of
certain components or may place similar limitations on coverage
in connection with insurance renewals for such satellites in the
future. An uninsured loss of a satellite would have a material
adverse effect on our financial performance. For further details
see Note 9 to the consolidated financial statements.

Like other satellite operators, we are faced
with increased launch and in-orbit insurance premiums and
shorter coverage periods.

Insurers also have made more stringent the
coverage terms of our launch and in-orbit insurance. At the same
time, the cost of obtaining this insurance has increased
significantly. While these developments in the insurance
industry have increased our cost of doing business there can be
no assurance that we will be able to pass the cost on to our
customers. For further details see Note 9 to the consolidated
financial statements.

Our business competes with other providers for
market share and customers.

We face heavy competition in the transponder
leasing business from companies such as PanAmSat Corporation,
SES Global, New Skies, Intelsat and Eutelsat. Competition puts
downward pressure on prices and may result in the reduced
utilization of our satellites capacity, both of which may
have an adverse effect on our financial performance.

Our transponder leasing business also competes
with fiber optic cable and other terrestrial delivery systems,
which have a cost advantage in point-to-point applications.
Competition in this sector has increased because there is an
over-supply of transponders in the global market, existing
customers are using less capacity and fewer new customers are
entering the market than in past years. Moreover, we have had a
higher rate of customer defaults than in previous years, a
trend, if it continues, that may further increase overcapacity.

As land-based telecommunications services expand
and become more sophisticated, demand for some satellite-based
services may be reduced. New technology could render
satellite-based services less competitive by satisfying consumer
demand in other ways or through the use of incompatible
standards. We also compete for local regulatory approval in
places where more than one provider may want to operate, and for
scarce frequency assignments and fixed orbital positions.

Our business is regulated, causing uncertainty
and additional costs.

Multiple authorities regulate our business,
including the Federal Communications Commission, the
International Telecommunication Union (ITU) and the
European Union. Regulatory authorities can modify, withdraw or
impose charges or conditions upon, or deny or delay action on
applications for, the licenses we need, and so increase our
costs.

To prevent frequency interference, the regulatory
process requires potentially lengthy and costly negotiations
with third parties who operate or intend to operate satellites
at or near the locations of our satellites. For example, as part
of our coordination effort on Telstar 12, we agreed to provide
four 54 MHz transponders on Telstar 12 to

18



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##### Table of Contents



Eutelsat for the life of the satellite and have
retained risk of loss with respect to those transponders. We
also granted Eutelsat the right to acquire, at cost, four
transponders on the replacement satellite for Telstar 12. We are
in discussions with various administrations regarding Telstar
12s continued operation at 15 degrees W.L. If these
coordination discussions are not successful, Telstar 12s
useable capacity may be reduced.


Failure to successfully coordinate our
satellites frequencies or to resolve other required
regulatory approvals could have an adverse effect on our
consolidated financial position and our results of operations.
For further details, see Note 9 to the consolidated financial
statements.

We face risks in conducting business
internationally.

For the year ended December 31, 2003,
approximately 38% of our revenue was generated from customers
located outside of the United States. We could be harmed
financially and operationally by changes in foreign regulations
and telecommunications standards, tariffs or taxes and other
trade barriers. Almost all of our contracts with foreign
customers require payment in U.S. dollars, and customers in
developing countries could have difficulty obtaining U.S.
dollars to pay us due to currency exchange controls and other
factors. Exchange rate fluctuations may adversely affect the
ability of our customers to pay us in U.S. dollars. If we need
to pursue legal remedies against our foreign business partners
or customers, we may have to sue them abroad where it could be
difficult for us to enforce our rights.

III. Other Risks

Litigations and Disputes.See Item 3. Legal
Proceedings and Note 9 to the consolidated financial statements.

Other Matters

Accounting
Pronouncements

During 2003, we adopted certain new accounting
pronouncements. There are also other pronouncements that have
been issued, but are not yet required to be adopted (see Note 3
to the consolidated financial statements).

On January 1, 2002, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets
(SFAS 142) which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. Our net loss for the year ended December 31,
2001 without the amortization of goodwill would have been
$72.7 million, as adjusted, as compared to
$88.3 million as reported.






Item 7a.Quantitative
and Qualitative Disclosures About Market Risk


Interest

As a result of our Chapter 11 filing, all of
our debt (aggregating $920 million) has been accelerated and is
included in liabilities subject to compromise.

As of December 31, 2003, the carrying value
of our debt obligations was $920 million and the fair value
of such debt was $529 million. As of December 31, 2002, the
carrying value of our debt obligations was $952 million and
the fair value of such debt was $279 million. The fair
value of our debt obligations is based on quoted market prices
(the fair value for our 11.75% and 12.5% senior notes was based
on the quoted market price of our 10% senior notes, as there was
no active market for those senior notes). Approximately
$214 million and $245 million of the difference
between the carrying amount and the fair value of our debt
obligations as of December 31, 2003 and 2002, respectively,
was attributable to the accounting for our exchange offers (see
Note 6 to the consolidated financial statements).




Item 8.Financial
Statements and Supplementary Data

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##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Stockholder of Loral Orion, Inc. (a
Debtor In Possession):

We have audited the accompanying consolidated
balance sheets of Loral Orion, Inc. (formerly Loral CyberStar,
Inc.) and its subsidiaries (collectively, the
Company) (a Debtor In Possession) a wholly owned
subsidiary of Loral Space & Communications Corporation, as
of December 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders (deficit) equity,
and cash flows for each of the three years in the period ended
December 31, 2003. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America.

As discussed in Note 4 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangibles to adopt the
provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002.

As discussed in Note 2 to the consolidated
financial statements, the Company has filed for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to
reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such consolidated financial
statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to
satisfy liabilities; (b) as to pre-petition liabilities,
the amounts that may be allowed for claims or contingencies, or
the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.

The accompanying consolidated financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company filed for
reorganization under Chapter 11 of the Federal Bankruptcy
Code. This factor, among others, raises substantial doubt about
the Companys ability to continue as a going concern.
Managements plans concerning these matters are also
discussed in Note 2. The consolidated financial statements
do not include adjustments that might result from the outcome of
this uncertainty.

DELOITTE & TOUCHE LLP

San Jose, California

March 15, 2004


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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED BALANCE SHEETS


(in thousands, except share amounts)


|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |            |        |         |          |  
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------ | ------------------------------------------- | ------ | ------- | --------- | ---------- | ------ | ------- | -------- | -
|                                                        |                                                                                                                      |                                               
|                                                        |                                                                                                                      | December 31,                                  
|                                                        |                                                                                                                      |                                               
|                                                        |                                                                                                                      | 2003                                           |              | 2002                                       
|                                                        |                                                                                                                      |                                                |              |                                            
|ASSETS                                                 
|Current assets:                                         |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        | Cash and cash equivalents                                                                                            |                                                | $            | 46,831                                      |        |         | $         | 42,964     |       
|                                                        | Accounts receivable, net                                                                                             |                                                |              | 7,880                                       |        |         |           | 7,615      |       
|                                                        | Prepaid expenses and other current assets                                                                            |                                                |              | 7,805                                       |        |         |           | 13,213     |       
|                                                        | Due from Loral companies                                                                                             |                                                |              |                                            |        |         |           | 52,577     |       
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        |                                                                                                                      |                                                |              | Total current assets                        |        |         | 62,516    |            |        |         | 116,369  |  
|Satellites and related equipment, net                   |                                                                                                                      |                                                | 574,337      |                                             |        |         | 524,699   |           
|Other assets, net                                       |                                                                                                                      |                                                | 5,579        |                                             |        |         | 17,318    |           
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        |                                                                                                                      |                                                | Total assets |                                             | $      | 642,432 |           |            | $      | 658,386 |         
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|LIABILITIES AND STOCKHOLDERS
    DEFICIT              
|Liabilities not subject to compromise:                  |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        | Current liabilities:                                                                                                 |                                                |              |                                             |        |         |           |            |       
|                                                        |                                                                                                                      | Current portion of long-term debt              |              | $                                           |       |         |           | $          | 62,996 |        
|                                                        |                                                                                                                      | Accounts payable                               |              |                                             | 824    |         |           |            | 2,387  |        
|                                                        |                                                                                                                      | Customer advances                              |              |                                             | 1,508  |         |           |            | 3,731  |        
|                                                        |                                                                                                                      | Due to Loral companies                         |              |                                             | 17,737 |         |           |            | 46,723 |        
|                                                        |                                                                                                                      | Accrued interest and other current liabilities |              |                                             |       |         |           |            | 6,431  |        
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        |                                                                                                                      |                                                |              | Total current liabilities                   |        |         | 20,069    |            |        |         | 122,268  |  
|Customer advances                                       |                                                                                                                      |                                                | 4,302        |                                             |        |         | 8,765     |           
|Long-term liabilities                                   |                                                                                                                      |                                                | 118,878      |                                             |        |         | 6,297     |           
|Long-term debt                                          |                                                                                                                      |                                                |             |                                             |        |         | 888,532   |           
|Note payable to Loral SpaceCom                          |                                                                                                                      |                                                |             |                                             |        |         | 31,540    |           
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|Total liabilities not subject to compromise             |                                                                                                                      |                                                | 143,249      |                                             |        |         | 1,057,402 |           
|Liabilities subject to compromise (Note 5)              |                                                                                                                      |                                                | 1,003,632    |                                             |        |         |          |           
|Commitments and contingencies (Notes 2, 5, 6 and
    9) |                                                                                                                      |                                                |              |                                             |        |         |           |           
|Stockholders deficit:                                  |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        | Common stock, $.01 par value; 1,000 shares
    authorized; 100 shares outstanding at December 31, 2003 and
    2002. |                                                |              |                                            |        |         |           |           |       
|                                                        | Paid-in capital                                                                                                      |                                                |              | 604,166                                     |        |         |           | 604,166    |       
|                                                        | Due from Loral companies                                                                                             |                                                |              | (59,601                                     | )      |         |           |           |       
|                                                        | Retained deficit                                                                                                     |                                                |              | (1,049,014                                  | )      |         |           | (1,003,182 | )     
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        |                                                                                                                      |                                                |              | Total stockholders deficit                 |        |         | (504,449  | )          |        |         | (399,016 | )
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           
|                                                        |                                                                                                                      |                                                |              | Total liabilities and stockholders deficit |        | $       | 642,432   |            |        | $       | 658,386  |  
|                                                        |                                                                                                                      |                                                |              |                                             |        |         |           |           

See notes to consolidated financial statements

21



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED STATEMENTS OF
OPERATIONS


(in thousands)


|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |         | 
|--------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------- | ------- |  | ---- | -------- | ------ |  | - | ------- | ------- | 
|                                                                                                                |                                              |                         
|                                                                                                                |                                              | Years ended December 31,
|                                                                                                                |                                              |                         
|                                                                                                                |                                              | 2003                     |         | 2002    |  | 2001
|                                                                                                                |                                              |                          |         |         |  |     
|Revenues from satellite services                                                                                |                                              | $                        | 93,578  |         |  | $    | 109,739  |        |  | $ | 108,945 |        
|Operating expenses:                                                                                             |                                              |                          |         |         |  |      |          |        |  |   |         |        
|                                                                                                                | Cost of satellite services                   |                          |         | 110,663 |  |      |          | 91,415 |  |   |         | 107,185 | 
|                                                                                                                | Selling, general and administrative expenses |                          |         | 13,763  |  |      |          | 11,053 |  |   |         | 10,796  | 
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Operating (loss) income before
    reorganization expenses due to bankruptcy                                    |                                              |                          | (30,848 | )       |  |      | 7,271    |        |  |   | (9,036  | )      
|Reorganization expenses due to bankruptcy                                                                       |                                              |                          | (5,561  | )       |  |      |         |        |  |   |        |        
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Operating (loss) income                                                                                         |                                              |                          | (36,409 | )       |  |      | 7,271    |        |  |   | (9,036  | )      
|Interest income                                                                                                 |                                              |                          | 18      |         |  |      | 631      |        |  |   | 653     |        
|Interest expense                                                                                                |                                              |                          | (6,522  | )       |  |      | (13,013  | )      |  |   | (98,339 | )      
|Gain on debt exchanges                                                                                          |                                              |                          |        |         |  |      |         |        |  |   | 34,541  |        
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Loss from continuing operations before income
    taxes and cumulative effect of change in accounting principle |                                              |                          | (42,913 | )       |  |      | (5,111   | )      |  |   | (72,181 | )      
|Income tax provision                                                                                            |                                              |                          | (2,919  | )       |  |      | (16,051  | )      |  |   | (3,989  | )      
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Loss from continuing operations                                                                                 |                                              |                          | (45,832 | )       |  |      | (21,162  | )      |  |   | (76,170 | )      
|Loss from discontinued operations (Note 12)                                                                     |                                              |                          |        |         |  |      |         |        |  |   | (12,087 | )      
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Loss before cumulative effect of change in
    accounting principle                                             |                                              |                          | (45,832 | )       |  |      | (21,162  | )      |  |   | (88,257 | )      
|Cumulative effect of change in accounting
    principle (Note 3)                                                |                                              |                          |        |         |  |      | (562,201 | )      |  |   |        |        
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        
|Net loss                                                                                                        |                                              | $                        | (45,832 | )       |  | $    | (583,363 | )      |  | $ | (88,257 | )      
|                                                                                                                |                                              |                          |         |         |  |      |          |        |  |   |         |        

See notes to consolidated financial statements

22



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED STATEMENTS OF STOCKHOLDERS
(DEFICIT) EQUITY


(in thousands)


|                             |                                                                              |        |   |         |  |           |         |          |  |                  |         |         |   |   |            |          |   |   |          |          |  
|---------------------------- | ---------------------------------------------------------------------------- | ------ | - | ------- |  | --------- | ------- | -------- |  | ---------------- | ------- | ------- | - | - | ---------- | -------- | - | - | -------- | -------- | -
|                             |                                                                              |        |   |         |  | Due From  |         |          |  | Total           
|                             |                                                                              | Common |   | Paid-in |  | Loral     |         | Retained |  | Stockholders   
|                             |                                                                              | Stock  |   | Capital |  | Companies |         | Deficit  |  | (Deficit) Equity
|                             |                                                                              |        |   |         |  |           |         |          |  |                 
|Balance at January 1, 2001   |                                                                              | $      |  |         |  | $         | 588,197 |          |  | $                |        |         |   | $ | (331,562   | )        |   | $ | 256,635  |         
|                             | Loral Space and Communications capital
    contributions                     |        |   |        |  |           |         | 9,249    |  |                  |         |        |   |   |            |         |   |   |          | 9,249    |  
|                             | Loral warrants issued in connection with debt
    exchanges, net of expenses |        |   |        |  |           |         | 6,720    |  |                  |         |        |   |   |            |         |   |   |          | 6,720    |  
|                             | Net loss                                                                     |        |   |        |  |           |         |         |  |                  |         |        |   |   |            | (88,257  | ) |   |          | (88,257  | )
|                             |                                                                              |        |   |         |  |           |         |          |  |                  |         |         |   |   |            |          |   |   |          |         
|Balance at December 31, 2001 |                                                                              |        |  |         |  |           | 604,166 |          |  |                  |        |         |   |   | (419,819   | )        |   |   | 184,347  |         
|                             | Net loss                                                                     |        |   |        |  |           |         |         |  |                  |         |        |   |   |            | (583,363 | ) |   |          | (583,363 | )
|                             |                                                                              |        |   |         |  |           |         |          |  |                  |         |         |   |   |            |          |   |   |          |         
|Balance at December 31, 2002 |                                                                              |        |  |         |  |           | 604,166 |          |  |                  |        |         |   |   | (1,003,182 | )        |   |   | (399,016 | )       
|                             | Reclass of receivables from Loral companies to
    equity                    |        |   |        |  |           |         |         |  |                  |         | (59,601 | ) |   |            |         |   |   |          | (59,601  | )
|                             | Net loss                                                                     |        |   |        |  |           |         |         |  |                  |         |        |   |   |            | (45,832  | ) |   |          | (45,832  | )
|                             |                                                                              |        |   |         |  |           |         |          |  |                  |         |         |   |   |            |          |   |   |          |         
|Balance at December 31, 2003 |                                                                              | $      |  |         |  | $         | 604,166 |          |  | $                | (59,601 | )       |   | $ | (1,049,014 | )        |   | $ | (504,449 | )       
|                             |                                                                              |        |   |         |  |           |         |          |  |                  |         |         |   |   |            |          |   |   |          |         

See notes to consolidated financial statements

23



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







CONSOLIDATED STATEMENTS OF CASH
FLOWS


(in thousands)


|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |         |   | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------- | ------- | ------ | ---- | -------- | ------- | - | - | ------- | ------- | - | 
|                                                 |                                                                                                                    |                         
|                                                 |                                                                                                                    | Years ended December 31,
|                                                 |                                                                                                                    |                         
|                                                 |                                                                                                                    | 2003                     |         | 2002    |        | 2001
|                                                 |                                                                                                                    |                          |         |         |        |     
|Operating Activities:                            |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net loss                                         |                                                                                                                    | $                        | (45,832 | )       |        | $    | (583,363 | )       |   | $ | (88,257 | )      
|Non-cash items:                                  |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Loss from discontinued operations                                                                                  |                          |         |        |        |      |          |        |   |   |         | 12,087  |  
|                                                 | Gain on debt exchanges                                                                                             |                          |         |        |        |      |          |        |   |   |         | (34,541 | )
|                                                 | Cumulative effect of change in accounting
    principle                                                            |                          |         |        |        |      |          | 562,201 |   |   |         |        |  
|                                                 | Deferred income tax provision                                                                                      |                          |         |        |        |      |          | 32,130  |   |   |         | 12,852  |  
|                                                 | Depreciation and amortization                                                                                      |                          |         | 89,545  |        |      |          | 75,292  |   |   |         | 94,005  |  
|                                                 | Adjustment to revenue straightlining assessment                                                                    |                          |         | 5,315   |        |      |          | 387     |   |   |         |        |  
|                                                 | Provisions for bad debts                                                                                           |                          |         | 1,930   |        |      |          | 744     |   |   |         | 1,732   |  
|                                                 | Loss on equipment disposals                                                                                        |                          |         | 2,151   |        |      |          |        |   |   |         |        |  
|                                                 | Non-cash interest expense, net                                                                                     |                          |         | 670     |        |      |          | 503     |   |   |         | 39,609  |  
|Changes in operating assets and liabilities:     |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Accounts receivable, net                                                                                           |                          |         | (2,195  | )      |      |          | 5,209   |   |   |         | (1,743  | )
|                                                 | Prepaid expenses and other current assets                                                                          |                          |         | 5,408   |        |      |          | (4,444  | ) |   |         | (5,634  | )
|                                                 | Other assets                                                                                                       |                          |         | 4,402   |        |      |          | 4,350   |   |   |         | (3,217  | )
|                                                 | Accounts payable                                                                                                   |                          |         | 218     |        |      |          | (1,003  | ) |   |         | (8,011  | )
|                                                 | Accrued interest and other current liabilities                                                                     |                          |         | 435     |        |      |          | 2,382   |   |   |         | 1,497   |  
|                                                 | Customer advances                                                                                                  |                          |         | (2,648  | )      |      |          | (4,059  | ) |   |         | 7,039   |  
|                                                 | Other long-term liabilities                                                                                        |                          |         | (1,738  | )      |      |          | (1,728  | ) |   |         | (2,160  | )
|                                                 | Due (to) from Loral companies                                                                                      |                          |         | (2,725  | )      |      |          | (1,049  | ) |   |         | (1,667  | )
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net cash provided by operating activities        |                                                                                                                    |                          | 54,936  |         |        |      | 87,552   |         |   |   | 23,591  |        
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net cash provided by discontinued operations     |                                                                                                                    |                          |        |         |        |      |         |         |   |   | 24,183  |        
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Investing Activities:                            |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Capital expenditures                                                                                               |                          |         | (20,434 | )      |      |          | (18,033 | ) |   |         | (579    | )
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net cash used in investing activities            |                                                                                                                    |                          | (20,434 | )       |        |      | (18,033  | )       |   |   | (579    | )      
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Financing Activities:                            |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Interest payments on 10% senior notes                                                                              |                          |         | (30,635 | )      |      |          | (45,954 | ) |   |         |        |  
|                                                 | Decrease in note payable to Loral SpaceCom                                                                         |                          |         |        |        |      |          |        |   |   |         | (28,166 | )
|                                                 | Equity contributed by Loral                                                                                        |                          |         |        |        |      |          |        |   |   |         | 2,700   |  
|                                                 | Repayment of notes payable                                                                                         |                          |         |        |        |      |          |        |   |   |         | (2,332  | )
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net cash used in financing activities            |                                                                                                                    |                          | (30,635 | )       |        |      | (45,954  | )       |   |   | (27,798 | )      
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Net increase in cash and cash equivalents        |                                                                                                                    |                          | 3,867   |         |        |      | 23,565   |         |   |   | 19,397  |        
|Cash and cash equivalents at beginning of period |                                                                                                                    |                          | 42,964  |         |        |      | 19,399   |         |   |   | 2       |        
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Cash and cash equivalents at end of period       |                                                                                                                    | $                        | 46,831  |         |        | $    | 42,964   |         |   | $ | 19,399  |        
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Non-cash activities:                             |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Exchange of senior notes and senior discount
    notes for New 10% senior notes and 0.6 million Loral
    warrants |                          |         |         |        |      |          |         |   |   | $       | 910,600 |  
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Exchange of data services business for reduction
    in note payable to Loral SpaceCom                             |                          |         |         |        |      |          |         |   |   | $       | 50,000  |  
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|Supplemental information:                        |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Interest paid, net of capitalized interest                                                                         |                          | $       | 34,873  |        |      | $        | 52,852  |   |   | $       | 49,840  |  
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Taxes paid                                                                                                         |                          | $       | 142     |        |      | $        | 206     |   |   | $       | 43      |  
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 | Cash received (paid) for reorganization
    items:                                                                 |                          |         |         |        |      |          |         |   |   |         |         |  
|                                                 |                                                                                                                    | Professional fees        |         | $       | (2,680 | )    |          |         |   |   |         |         |   | 
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        
|                                                 |                                                                                                                    | Interest income          |         | $       | 182    |      |          |         |   |   |         |         |   | 
|                                                 |                                                                                                                    |                          |         |         |        |      |          |         |   |   |         |        

See notes to consolidated financial statements

24



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

(A wholly owned subsidiary of Loral Space
& Communications Corporation)







NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                    
|-- | -----------------------------------
|1. | Organization and Principal Business

Loral Orion, Inc. (the Company or
Loral Orion, which terms shall include its
subsidiaries unless otherwise indicated or the context
requires), together with its subsidiaries, operates in one
business segment, Satellite Services. The Companys
Satellite Services business is managed by Loral Skynet, a
division of a subsidiary of Loral Space and Communications Ltd.
(Loral), the Companys parent. Substantially
all of the Companys revenues and cash are generated from
leasing transponder capacity to customers for video
transmission, direct to home (DTH) broadcasting,
high-speed data services, international Internet communications
and telephone services.



|   |                                          
|-- | -----------------------------------------
|2. | Bankruptcy Filings and
    Reorganization



| |                   
| | ------------------
| | Bankruptcy Filings

On July 15, 2003, Loral, Loral Orion and
certain of its subsidiaries, including Loral Asia Pacific
Satellite (HK) Limited (Loral Asia Pacific), (the
Debtor Subsidiaries and together with Loral, Loral
Orion and certain other Loral subsidiaries the
Debtors), filed voluntary petitions for
reorganization under chapter 11 of title 11
(Chapter 11) of the United States Code (the
Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the
Bankruptcy Court) (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD))
(the Chapter 11 Cases). Loral Orion and its
Debtor Subsidiaries continue to manage their properties and
operate their businesses as debtors in possession
under the jurisdiction of the Bankruptcy Court and in accordance
with the provisions of the Bankruptcy Code (see Basis of
PresentationNote 3).

As a result of Loral Orions and the Debtor
Subsidiaries voluntary petitions for reorganization, all
of Loral Orions prepetition debt obligations (aggregating
$920 million at December 31, 2003), including its 10%
senior notes obligations, have been accelerated (see below and
Notes 5 & 6). On July 15, 2003, Loral Orion
suspended interest payments on all of its senior unsecured
notes, with an aggregate principal amount of $699 million.
A creditors committee has been appointed in the
Chapter 11 Cases to represent all unsecured creditors of
Loral, including all holders of Loral Orions senior
unsecured notes, and, in accordance with the provisions of the
Bankruptcy Code, has the right to be heard on all matters that
come before the Bankruptcy Court (see Note 6).

During the pendency of the Chapter 11 Cases,
Loral Orions business will be subject to risks and
uncertainties relating to the Chapter 11 Cases. For
example, the Chapter 11 Cases could adversely affect
relationships with Loral Orions customers, which could
adversely affect the going concern value of the business and of
its assets, particularly if the Chapter 11 Cases are
protracted. Also, transactions outside the ordinary course of
business will be subject to the prior approval of the Bankruptcy
Court which may limit Loral Orions ability to respond to
certain market events or take advantage of certain market
opportunities, and, as a result, Loral Orions operations
could be materially adversely affected.

As a result of the commencement of the
Chapter 11 Cases, the pursuit of all pending claims and
litigation against Loral Orion and its Debtor Subsidiaries
arising prior to or relating to events which occurred prior to
the commencement of the Chapter 11 Cases is generally
subject to an automatic stay under Section 362 of the
Bankruptcy Code, and, absent further order of the Bankruptcy
Court, a party is generally prohibited from taking any action to
recover any prepetition claims, enforce any lien against or
obtain possession of any property from Loral Orion or its Debtor
Subsidiaries. In addition, pursuant to Section 365 of the
Bankruptcy Code, Loral Orion and its Debtor Subsidiaries may
reject or assume prepetition executory contracts and unexpired
leases, and parties affected by rejections of these contracts or
leases may file claims with the Bankruptcy Court which will be
addressed in the context of the Chapter 11 Cases.

25



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                        
|-- | -------------------------------------------------------
|2. | Bankruptcy Filings and
    Reorganization  (Continued)



| |               
| | --------------
| | Reorganization

Loral Orion intends to reorganize around its
satellites. Loral Orion is in the process now of completing its
long-term business plan. Loral Orion believes it will not
require any additional financing to fund operations.

As provided by the Bankruptcy Court, the Debtors
had an exclusive right to submit their plan or plans of
reorganization for 120 days from the date of the
Chapter 11 filing. On November 12, 2003, the
Bankruptcy Court extended this exclusive period for another
120 days. On March 16, 2004, a hearing will be held to
consider a further extension of the exclusivity period and
additional extensions may be sought and may be granted or
rejected by the Bankruptcy Court. If the Debtors fail to file
their plan or plans of reorganization during such period, or if
a plan is filed and such plan or plans is not accepted by the
required number of creditors and equity holders within the
required period, any party in interest may subsequently file its
own plan or plans of reorganization for the Debtors, including
Loral Orion and its Debtor Subsidiaries. A plan of
reorganization must be confirmed by the Bankruptcy Court upon
certain findings being made by the Bankruptcy Court which are
required by the Bankruptcy Code. The Bankruptcy Court may
confirm a plan of reorganization notwithstanding rejection of
the plan by an impaired class of creditors or equity holders if
certain requirements of the Bankruptcy Code are met. Although
the Debtors expect to file a reorganization plan or plans that
provide for emergence from bankruptcy sometime during 2004,
Loral Orion cannot now describe the components or features of
the plan, including whether the plan will provide for creditors
to be paid in whole or in part or whether consideration they
will receive will consist of cash, debt, equity or some
combination thereof. In addition, there can be no assurance that
the Debtors will be able to propose a plan, obtain court
approval of any plan proposed, obtain acceptances from the
number of creditors necessary to confirm a plan, or actually
confirm and consummate a plan.



|   |                                               
|-- | ----------------------------------------------
|3. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

Loral Orion has a December 31 year-end.
The consolidated financial statements for the three years ended
December 31, 2003, include the results of Loral Orion and
its subsidiaries and have been prepared in accordance with
U.S. generally accepted accounting principles
(U.S. GAAP). All intercompany transactions have
been eliminated.

The accompanying consolidated financial
statements have been prepared assuming the Company, in its
current structure, will continue as a going concern. However,
the factors mentioned in Note 2 above, among other things,
raise substantial doubt about Loral Orions ability to
continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. The ability of the Company to
continue as a going concern is dependent on a number of factors
including, but not limited to, the Companys developing a
plan of reorganization, confirmation of the plan by the
Bankruptcy Court and the Company maintaining good relations with
its customers and suppliers. If a plan of reorganization is not
confirmed and implemented, the Company may be forced to
liquidate under applicable provisions of the Bankruptcy Code.
There can be no assurance of the level of recovery that the
Companys creditors would receive in such liquidation. The
consolidated financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities if the Company is forced to liquidate (see
Reorganizationin Note 2).

The consolidated financial statements have been
prepared in accordance with Statement of Position No. 90-7,
Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7). SOP 90-7
requires an entity to distinguish prepetition liabilities
subject to compromise from postpetition liabilities in the
Companys consolidated balance sheet. The caption
liabilities subject to compromise

26



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)

reflects the Companys best current estimate
of the amount of prepetition claims that will be restructured in
Loral Orions and its Debtor Subsidiaries
Chapter 11 Cases. In addition, the Companys
consolidated statements of operations portrays the results of
operations of the reporting entity during Chapter 11
proceedings. As a result, any revenue, expenses, realized gains
and losses, and provision for losses resulting directly from the
reorganization and restructuring of the organization are
reported separately as reorganization items, except those
required to be reported as discontinued operations and
extraordinary items in conformity with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144) and SFAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections
(SFAS 145). The Company did not prepare
condensed combined financial statements for Loral Orion and the
Debtor Subsidiaries, since the subsidiaries that did not file
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code were immaterial to the Companys
consolidated financial position and results of operations.



| |                                                            
| | -----------------------------------------------------------
| | Use of Estimates in Preparation of Financial
    Statements

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and amounts of revenues
and expenses reported for the period. Significant estimates
include the estimated useful lives of the Companys
satellites and, prior to 2002, the amortization period of cost
in excess of net assets acquired. Actual results could differ
from those estimates.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand
and highly liquid investments with original maturities of three
months or less.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments which potentially subject
Loral Orion to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable. The
Companys cash and cash equivalents are maintained with
high-credit-quality financial institutions. The company does not
require collateral against its receivables; however, management
believes that its credit evaluation, approval and monitoring
processes combined with negotiated billing arrangements mitigate
potential credit risks with regard to the Companys current
customer base.



| |                    
| | -------------------
| | Accounts Receivable

As of December 31, 2003 and 2002, accounts
receivable was reduced by an allowance for doubtful accounts of
$2.5 million and $1.1 million, respectively.

27



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)



| |                                 
| | --------------------------------
| | Satellites and Related Equipment

Satellites and related equipment consist of the
following (in thousands):

|                                                                                             |  |              |          |      |  |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                                                                             |  |             
|                                                                                             |  | December 31,
|                                                                                             |  |             
|                                                                                             |  | 2003         |          | 2002
|                                                                                             |  |              |          |     
|Satellites and related equipment, including
    satellite transponder rights of $273 million |  | $            | 789,697  |      |  | $ | 796,118  |  
|Satellite under construction                                                                 |  |              | 157,337  |      |  |   | 18,057   |  
|                                                                                             |  |              |          |      |  |   |          |  
|Total satellite and related equipment                                                        |  |              | 947,034  |      |  |   | 814,175  |  
|Less accumulated depreciation and amortization                                               |  |              | (372,697 | )    |  |   | (289,476 | )
|                                                                                             |  |              |          |      |  |   |          |  
|Total satellite and related equipment, net                                                   |  | $            | 574,337  |      |  | $ | 524,699  |  
|                                                                                             |  |              |          |      |  |   |          |  

Satellites and related equipment are recorded at
cost. Depreciation and amortization expense for the years ended
December 31, 2003, 2002 and 2001 was $87.5 million,
$73.3 million, and $76.2 million, respectively.
Accumulated depreciation and amortization at December 31,
2003 and 2002 includes $89.5 million and
$68.5 million, respectively, related to the Companys
rights to transponders for the remaining life of Telstar 10/
Apstar IIR. Depreciation expense is calculated using the
straight-line method over the estimated useful lives of 9.5 to
16.5 years. See Note 9.

Costs incurred in connection with the
construction and successful deployment of the Companys
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance, construction period interest and the
present value of satellite incentive payments. Capitalized
interest related to the construction of satellites for 2003 and
2002 was $0.9 million and $0.3 million, respectively.
All capitalized satellite costs are amortized over the estimated
useful life of the related satellite. The estimated useful life
of the satellites was determined by engineering analyses
performed at the satellites in-service date. Satellite
lives are reevaluated periodically. Losses from unsuccessful
launches and in-orbit failures of the Companys satellites,
net of insurance proceeds, are recorded in the period a loss
occurs.

In September 1999, Loral Orion purchased from APT
Satellite Company Limited (APT) for approximately
$273 million, the rights to all transponder capacity and
existing customer leases on the Apstar IIR satellite (except for
one C-band transponder retained by APT), and renamed the
satellite the Telstar 10/ Apstar IIR satellite. Loral Orion has
full use of the transponders for the remaining life of Telstar
10/ Apstar IIR (see Commitments and Contingencies).

The transponder capacity on satellites in-orbit
are either leased by customers or held for lease by the Company.
Future minimum lease receipts due from customers under long-term
operating leases for

28



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)

transponder capacity on the Companys
satellites in-orbit as of December 31, 2003 are as follows
(in thousands):

|           |       |   |         |         | 
|---------- | ----- | - | ------- | ------- | 
|2004       |       | $ | 69,385  |        
|2005       |       |   | 58,238  |        
|2006       |       |   | 47,050  |        
|2007       |       |   | 42,929  |        
|2008       |       |   | 35,181  |        
|Thereafter |       |   | 173,696 |        
|           |       |   |         |        
|           | Total |   | $       | 426,479 | 
|           |       |   |         |        



| |                                          
| | -----------------------------------------
| | Cost in Excess of Net Assets
    Acquired

On January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS
142), which addresses the initial recognition and
measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. In connection with the
adoption, the Company recorded a non-cash charge for the
cumulative effect of the change in accounting principle of $562
million, see Note 4. Prior to January 1, 2002, the excess
of the cost of purchased businesses over the fair value of net
assets acquired was being amortized over 40 years using the
straight-line method.



| |                               
| | ------------------------------
| | Valuation of Long-Lived Assets

The carrying value of Loral Orions
long-lived assets is reviewed for impairment in accordance with
SFAS 144 whenever events or changes in circumstances indicate
that an asset may not be recoverable. The Company looks to
current and future profitability, as well as current and future
undiscounted cash flows, excluding financing costs, as primary
indicators of recoverability. If impairment is determined to
exist, any related impairment loss is calculated based on fair
value. Fair value is determined based on quoted market values,
discounted cash flows or appraisals, as appropriate in the
circumstances.



| |                    
| | -------------------
| | Revenue Recognition

The Company provides satellite capacity under
lease agreements that generally provide for the use of satellite
transponders and, in certain cases, earth stations for periods
generally ranging from one year to the end of life of the
satellite. Some of these agreements have certain obligations,
including providing spare or substitute capacity, if available,
in the event of satellite failure. If no spare or substitute
capacity is available, the agreement may be terminated. Revenue
under transponder lease agreements is recognized as services are
performed, provided that a contract exists, the price is fixed
or determinable and collectibility is reasonably assured.
Revenues under contracts that include fixed lease payment
increases are recognized on a straight-line basis over the life
of the lease.

29



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)



| |             
| | ------------
| | Income Taxes

The provision for income taxes on the loss from
continuing operations before income taxes and cumulative effect
of change in accounting principle differs from the amount
computed by applying the statutory U.S. Federal income tax
rate because of the effect of the following items (in thousands):

|                                                          |                                                                          |                         |        |         |   |      |         |         |   |   |        |         |  
|--------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------- | ------ | ------- | - | ---- | ------- | ------- | - | - | ------ | ------- | -
|                                                          |                                                                          |                        
|                                                          |                                                                          | Year ended December 31,
|                                                          |                                                                          |                        
|                                                          |                                                                          | 2003                    |        | 2002    |   | 2001
|                                                          |                                                                          |                         |        |         |   |     
|Tax benefit at U.S. Statutory Rate of 35%                 |                                                                          | $                       | 15,019 |         |   | $    | 1,789   |         |   | $ | 25,263 |        
|Permanent adjustments which change statutory
    amounts: |                                                                          |                         |        |         |   |      |         |         |   |   |        |        
|                                                          | Interest on senior notes                                                 |                         |        | (59     | ) |      |         | (117    | ) |   |        | (1,061  | )
|                                                          | Non-U.S. income taxed at lower rates                                     |                         |        | (92     | ) |      |         | (205    | ) |   |        |        |  
|                                                          | Reorganization expenses due to bankruptcy                                |                         |        | (2,073  | ) |      |         |         |   |   |        |         |  
|                                                          | Non-deductible amortization of cost in excess of
    net assets acquired |                         |        |         |   |      |         |        |   |   |        | (5,428  | )
|                                                          | Change in valuation allowance                                            |                         |        | (15,714 | ) |      |         | (17,518 | ) |   |        | (22,763 | )
|                                                          |                                                                          |                         |        |         |   |      |         |         |   |   |        |        
|Net income tax provision                                  |                                                                          | $                       | (2,919 | )       |   | $    | (16,051 | )       |   | $ | (3,989 | )      
|                                                          |                                                                          |                         |        |         |   |      |         |         |   |   |        |        

At December 31, 2003, the Company had
approximately $438 million in net operating loss
carryforwards which expire at varying dates from 2019 through
2023. While the NOLs can be used to offset future taxable
income, future use may be impaired depending upon various
factors relating to the Companys plan of reorganization
such as how creditor claims are satisfied, how the equity
interests in Loral as a reorganized company are distributed, the
extent of any capital infusion by new investors and Lorals
value and the Companys level of debt at the time of
emergence from bankruptcy, which are all unknown at this time.
Moreover, if it is determined that Loral experienced an
ownership change during the three-year period
preceding the emergence from bankruptcy, future use of these
NOLs would be severely limited. An ownership change would be
triggered if shareholders owning 5% or more of Lorals
total equity value change their holdings during this three-year
period by more than 50% in the aggregate. On August 22,
2003, the Bankruptcy Court entered an order to assist the
Company in protecting the NOLs by establishing procedures that
require certain proposed acquirers of a Debtors securities
to notify the Company about a prospective acquisition, thus
giving the Company an opportunity to file an objection with the
Bankruptcy Court if deemed necessary. While there is no
guarantee that the Bankruptcy Court will rule in the
Companys favor in the event of a dispute between a
proposed acquirer and the Company, a ruling against the Company
could jeopardize a substantial portion of its NOLs.

The Company is included in the U.S. federal
income tax return of its parent company, Loral Space &
Communications Corporation. Pursuant to annual tax sharing
agreements with its parent, the Company is entitled to
reimbursement for the parents use of the Companys
net operating losses. The Company has been credited with
cumulative reimbursements of $45.8 million through
December 31, 2003.

The Company assesses the recoverability of its
loss carryforwards and other deferred tax assets and based upon
this analysis, records a valuation allowance to the extent
recoverability does not satisfy the more likely than
not recognition criteria in SFAS No. 109. Based upon
this analysis, management concluded during the fourth quarter of
2002 that, due to insufficient positive evidence substantiating
recoverability, a 100% valuation allowance should be established
for the entire balance of the Companys deferred tax asset.
During 2003, the

30



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)

Company continued to maintain the 100% valuation
allowance increasing the reserve to $186.4 million. The
valuation allowance was $177.4 million at December 31,
2002 and $170 million at December 31, 2001.

The Company will maintain the valuation allowance
until sufficient positive evidence exists to support its
reversal. When the Company determines that it will be able to
realize its deferred tax asset, an adjustment to the valuation
allowance will increase income in the period such determination
is made.

For the year ended December 31, 2003, the
Company recorded a current income tax provision of
$2.8 million related to the tax sharing agreement and a
current foreign tax provision of $0.1 million, resulting in
a total tax provision of $2.9 million.

For the year ended December 31, 2002, the
Company recorded a current income tax benefit of
$16.3 million related to the tax sharing agreement, a
current foreign tax provision of $0.2 million and a
deferred tax provision (including valuation allowance) of
$32.1 million, resulting in a net tax provision of
$16.1 million.

For the year ended December 31, 2001, the
Company recorded a current income tax benefit of
$8.9 million related to the tax sharing agreement and a
deferred tax provision of $12.9 million, resulting in a net
tax provision of $4.0 million. The tax provision for 2001
excluded a current tax benefit of $0.1 million under the tax
sharing agreement and a current foreign tax provision of
$1.1 million related to discontinued operations.

The Company recognizes deferred taxes for the
expected future tax effect of temporary differences between the
carrying amount of assets and liabilities for financial and
income tax reporting using statutory tax rates in effect for the
year during which the differences are expected to reverse.

Following is a summary of the components of the
net deferred income tax asset at December 31, 2003 and 2002
(in thousands):

|                                 |  |              |          |      |  |   |          |  
|-------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                 |  |             
|                                 |  | December 31,
|                                 |  |             
|                                 |  | 2003         |          | 2002
|                                 |  |              |          |     
|Net operating loss carryforwards |  | $            | 153,424  |      |  | $ | 100,784  |  
|Premium on Senior Notes          |  |              | 113,847  |      |  |   | 157,042  |  
|Amortization of intangibles      |  |              | (9,030   | )    |  |   | (9,746   | )
|Depreciation                     |  |              | (75,671  | )    |  |   | (74,258  | )
|Other                            |  |              | 3,812    |      |  |   | 3,550    |  
|                                 |  |              |          |      |  |   |          |  
|Subtotal                         |  |              | 186,382  |      |  |   | 177,372  |  
|Less valuation allowance         |  |              | (186,382 | )    |  |   | (177,372 | )
|                                 |  |              |          |      |  |   |          |  
|Net deferred income tax asset    |  | $            |         |      |  | $ |         |  
|                                 |  |              |          |      |  |   |          |  

31



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|3. | Summary of Significant Accounting
    Policies  (Continued)



| |                   
| | ------------------
| | Comprehensive Loss

During the periods presented, comprehensive loss
was the same as net loss.



| |                              
| | -----------------------------
| | New Accounting Pronouncements



| |         
| | --------
| | SFAS 143

In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result
from the acquisition, construction, development and the normal
operation of a long-lived asset, except for certain obligations
of lessees. The Company has determined that there was no effect
on its consolidated financial position or results of operations
upon the adoption of SFAS 143 on January 1, 2003.



| |       
| | ------
| | FIN 45

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45).
FIN 45 elaborates on the disclosures to be made by the guarantor
in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation were applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002; while the provisions of the disclosure
requirements were effective for financial statements of interim
or annual reports ending after December 15, 2002. The
Company adopted the disclosure provisions of FIN 45 during the
fourth quarter of 2002. The Company adopted the recognition
provisions of FIN 45 on January 1, 2003 and determined that
there was no effect on its consolidated financial position or
its results of operation.



| |           
| | ----------
| | EITF 00-21

In May 2003, the Emerging Issues Task Force of
the FASB (EITF) reached a consensus on Issue
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21).
EITF 00-21 addresses determination of whether an
arrangement involving more than one deliverable contains more
than one unit of accounting and how the related revenues should
be measured and allocated to the separate units of accounting.
EITF 00-21 applies to revenue arrangements entered into
after June 30, 2003; however, upon adoption, the
EITF allows the guidance to be applied on a retroactive
basis, with the change, if any, reported as a cumulative effect
of accounting change in the statement of operations. Management
determined that the adoption of EITF 00-21 did not have a
significant impact on its consolidated financial position or its
results of operations.



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform to the current year presentation.



|   |                                                                 
|-- | ----------------------------------------------------------------
|4. | Accounting for Goodwill and Other Acquired
    Intangible Assets

On January 1, 2002, the Company adopted
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which addresses the initial
recognition and measurement of intangible assets acquired outside

32



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|4. | Accounting for Goodwill and Other Acquired
    Intangible Assets  (Continued)

of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
rather be tested at least annually for impairment. SFAS 142
also changed the evaluation criteria for testing goodwill for
impairment from an undiscounted cash flow approach, which was
previously utilized under the guidance in
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121) and Accounting Principles Board
Opinion No. 17, Intangible Assets
(APB 17), to a test based on fair value. Fair
value is determined by the amount at which an asset or liability
could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale.
Quoted market prices in active markets are the best evidence of
fair value and must be used as the basis for the measurement, if
available. If quoted market prices are not available, the
estimate of fair value must be based on the best information
available, including prices for similar assets and liabilities
and the results of using other valuation techniques, such as
public company trading multiples and future discounted cash
flows.



| |         
| | --------
| | Goodwill

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $562 million (at
December 31, 2001) from the acquisition of the Company by
Loral in 1998 was reviewed under the new transitional guidance
as of January 1, 2002. The Company hired professionals in
the valuation consulting business to determine the fair value of
the Company. Since there were no quoted market prices in active
markets for the Company, the measurement of fair value was based
on the best information available in the circumstances,
including reasonable and supportable assumptions and
projections, to determine that the most appropriate method of
fair value was public company trading multiples. Based on the
fair values concluded on by those professionals, management
determined that the Companys goodwill under the new
guidance in SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$562 million.

The charge was the result of a change in the
evaluation criteria for goodwill from an undiscounted cash flow
approach, which was previously utilized under the guidance in
SFAS 121 and APB 17, to the fair value approach which is
stipulated in SFAS 142.

The following table presents the actual financial
results and as adjusted financial results without the
amortization of goodwill for the Company for the year ended
December 31, 2001 (in thousands):

|                                         |  |        |         |             |  |   |         |  
|---------------------------------------- |  | ------ | ------- | ----------- |  | - | ------- | -
|                                         |  |       
|                                         |  | 2001  
|                                         |  |       
|                                         |  | Actual |         | As Adjusted
|                                         |  |        |         |            
|Reported loss from continuing operations |  | $      | (76,170 | )           |  | $ | (76,170 | )
|Add back amortization of goodwill        |  |        |        |             |  |   | 15,508  |  
|                                         |  |        |         |             |  |   |         |  
|Loss from continuing operations          |  |        | (76,170 | )           |  |   | (60,662 | )
|Loss from discontinued operations        |  |        | (12,087 | )           |  |   | (12,087 | )
|                                         |  |        |         |             |  |   |         |  
|Net loss                                 |  | $      | (88,257 | )           |  | $ | (72,749 | )
|                                         |  |        |         |             |  |   |         |  



| |                                 
| | --------------------------------
| | Other Acquired Intangible Assets

The Company evaluated the useful lives of its
other acquired intangible assets in connection with the adoption
of SFAS 142 and determined that no changes to the useful
lives were necessary.

33



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|4. | Accounting for Goodwill and Other Acquired
    Intangible Assets  (Continued)

Other acquired intangible assets are included in
other assets in the Companys consolidated balance sheets
and were as follows (in millions):

|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |      |  
|------------------ | ----- | ----------------- | --- | ----------------- |  | ------ | ---- | ------------ | - | - | --- | ---- |  | - | ---- | ---- | -
|                   |       |                   |     |                  
|                   |       | December 31, 2003 |     | December 31, 2002
|                   |       |                   |     |                  
|                   |       | Gross             |     | Accumulated       |  | Gross  |      | Accumulated 
|                   |       | Amount            |     | Amortization      |  | Amount |      | Amortization
|                   |       |                   |     |                   |  |        |      |             
|Customer relations |       | $                 | 7.0 |                   |  | $      | (5.5 | )            |   | $ | 7.0 |      |  | $ | (4.5 | )   
|Trademarks         |       |                   | 6.0 |                   |  |        | (4.7 | )            |   |   | 6.0 |      |  |   | (3.9 | )   
|Regulatory         |       |                   | 2.5 |                   |  |        | (1.7 | )            |   |   | 2.5 |      |  |   | (1.4 | )   
|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |     
|                   | Total |                   | $   | 15.5              |  |        | $    | (11.9        | ) |   | $   | 15.5 |  |   | $    | (9.8 | )
|                   |       |                   |     |                   |  |        |      |              |   |   |     |      |  |   |      |     

As of December 31, 2003, the weighted
average remaining amortization period for customer relations and
trademarks was one and a half years and for regulatory fees was
eight years.

Total amortization expense for other acquired
intangible assets for the years ended December 31, 2003 and
2002 was $2.0 million, and for the year ended
December 31, 2001 was $2.2 million. Annual
amortization expense for other acquired intangible assets for
the five years ending December 31, 2008 is estimated to be
as follows (in millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2004 |  | $ | 2.0 | 
|2005 |  |   | 1.2 | 
|2006 |  |   |    | 
|2007 |  |   |    | 
|2008 |  |   |    | 



|   |                                  
|-- | ---------------------------------
|5. | Liabilities Subject to Compromise

As discussed in Note 2, the Company and its
Debtor Subsidiaries have been operating as a debtor in
possession under the jurisdiction of the Bankruptcy Court and in
accordance with the provisions of the Bankruptcy Code.

In the consolidated balance sheet, the caption
liabilities subject to compromise reflects Loral
Orions current estimate of the amount of prepetition
claims that will be restructured in Loral Orions and its
Debtor Subsidiaries Chapter 11 Cases. Pursuant to
court order, Loral Orion has been authorized to pay certain
prepetition operating liabilities incurred in the ordinary
course of business (e.g. insurance). Since July 15, 2003,
as permitted under the Bankruptcy Code, the Company has rejected
certain of its prepetition obligations. Loral Orion is in the
process of calculating its estimated liability to the unsecured
creditors affected by these contract rejections. The Bankruptcy
Court established January 26, 2004 as the bar date in the
Debtors Chapter 11 Cases, which is the date by which
claims against Loral Orion and its Debtor Subsidiaries were
required to have been filed for claimants to receive any
distribution in the Chapter 11 Cases. Differences between
liability amounts estimated by the Company and claims filed by
creditors are being investigated and the Bankruptcy Court will
make a final determination of the allowable claim. The
determination of how liabilities will ultimately be treated
cannot be made until the Bankruptcy Court approves a
Chapter 11 plan of reorganization. Loral Orion and its
Debtor Subsidiaries will continue to evaluate the amount and
classification of their prepetition liabilities in general
through the remainder of their Chapter 11 Cases. Should
Loral Orion or its Debtor Subsidiaries, through this ongoing
evaluation, identify additional liabilities subject to
compromise, such amounts will be recognized accordingly. As a
result, liabilities subject to compromise are
subject to change. Claims classified as liabilities
subject to compromise represent

34



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                    
|-- | ---------------------------------------------------
|5. | Liabilities Subject to
    Compromise  (Continued)

secured as well as unsecured claims. Liabilities
subject to compromise at December 31, 2003 consisted of the
following (in thousands):

|                                               |                                         |   |         |           | 
|---------------------------------------------- | --------------------------------------- | - | ------- | --------- | 
|Debt obligations (Note 6)                      |                                         | $ | 919,977 |          
|Accounts payable                               |                                         |   | 1,781   |          
|Customer advances                              |                                         |   | 4,038   |          
|Accrued interest and other current liabilities |                                         |   | 6,866   |          
|Other long term liabilities                    |                                         |   | 4,559   |          
|Due to Loral companies                         |                                         |   | 33,285  |          
|Note payable to Loral SpaceCom                 |                                         |   | 33,126  |          
|                                               |                                         |   |         |          
|                                               | Total liabilities subject to compromise |   | $       | 1,003,632 | 
|                                               |                                         |   |         |          



|   |     
|-- | ----
|6. | Debt

Debt consists of the following (in thousands):

|                                                                                                                                                 |                                                    |              |         |              |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------- | ------------ | ------- | ------------ |  | - | ------- | ------- | 
|                                                                                                                                                 |                                                    | December 31, |         | December 31,
|                                                                                                                                                 |                                                    | 2003         |         | 2002        
|                                                                                                                                                 |                                                    |              |         |             
|10.00% senior notes due 2006:                                                                                                                    |                                                    |              |         |              |  |   |         |        
|                                                                                                                                                 | Principal amount                                   |              | $       | 612,704      |  |   | $       | 612,704 | 
|                                                                                                                                                 | Accrued interest (deferred gain on debt exchanges) |              |         | 214,446      |  |   |         | 245,080 | 
|11.25% senior notes due 2007 (principal amount
    $37 million)                                                                                  |                                                    |              | 39,402  |              |  |   | 39,762  |        
|12.50% senior discount notes due 2007 (principal
    amount at maturity and accreted principal amount
    $49 million)                           |                                                    |              | 53,425  |              |  |   | 53,982  |        
|                                                                                                                                                 |                                                    |              |         |              |  |   |         |        
|                                                                                                                                                 | Total debt                                         |              |         | 919,977      |  |   |         | 951,528 | 
|Less, current maturities at December 31,
    2002 and amounts included in liabilities subject to compromise
    as of December 31, 2003 (Note 5) |                                                    |              | 919,977 |              |  |   | 62,996  |        
|                                                                                                                                                 |                                                    |              |         |              |  |   |         |        
|                                                                                                                                                 |                                                    | $            |        |              |  | $ | 888,532 |        
|                                                                                                                                                 |                                                    |              |         |              |  |   |         |        

Loral Orion currently has approximately
$920 million in debt (including future accrued interest of
$214 million associated with the deferred gain on the Loral
Orion debt exchanges). As a result of the commencement of the
Chapter 11 Cases, Loral Orion suspended interest payments
on all of its debt, which has significantly reduced Loral
Orions cash interest payments.

As a result of Loral Orions and the Debtor
Subsidiaries voluntary petitions for reorganization, all
$699 million principal amount of Loral Orions
prepetition debt obligations, including its 10% senior notes
obligations, have been accelerated. On July 15, 2003, Loral
Orion suspended interest payments on its 10% Senior Notes due
2006, the 11.25% Senior Notes due 2007 and the 12.50% Senior
Notes due 2007. A creditors committee has been appointed
in the Chapter 11 Cases to represent all unsecured
creditors of Loral, including all holders of Loral Orions
senior unsecured notes, and, in accordance with the provisions
of the Bankruptcy Code, it has the right to be heard on all
matters that come before the Bankruptcy Court (see Note 2).
From July 15, 2003 to December 31, 2003, Loral Orion
did not recognize $4.7 million of interest expense and
$28.1 million of a reduction to its 10% senior notes as a
result of the suspension of interest payments on its debt
obligations.

35



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                   
|-- | ------------------
|6. | Debt  (Continued)

On December 21, 2001, Loral Orion issued
$613 million principal amount of 10% senior notes due 2006
and guaranteed by Loral, in exchange for the extinguishment of
$841 million principal amount of Loral Orion 11.25% senior
notes due 2007 and 12.5% senior discount notes due 2007 as
discussed below. As part of the exchange, Loral issued to the
new note holders 604,299 five-year warrants to purchase Loral
common stock at a price of $23.70 per share. The warrants were
valued at $7 million using the Black Scholes option pricing
model with the following assumptions: stock volatility, 75%,
risk free interest rate, 4.36%, and no dividends during the
expected term. The share and per share amounts have been
restated to reflect a one-for-ten reverse stock split by Loral
during 2003. As of December 31, 2003, principal amount of
$37 million of the existing 11.25% senior notes and
principal amount of $49 million of the existing 12.5%
senior discount notes remain outstanding at their original
maturities and interest rates.

The interest rate on the 10% senior notes is a
reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% interest rate on the existing senior
discount notes. Interest is payable semi-annually on
July 15 and January 15, beginning July 15, 2002.
Under U.S. generally accepted accounting principles dealing
with debt restructurings, in 2001 the Company recorded a gain of
$34.5 million on the exchange, after expenses of
$5 million. The carrying value of the 10% senior notes on
the balance sheet at December 31, 2003 was
$827 million, although the actual principal amount of the
10% senior notes is $613 million. The difference between
this carrying value and the actual principal amount of the 10%
senior notes is being amortized over the remaining life of the
10% senior notes, fully offsetting interest expense through
maturity of the 10% senior notes. The indenture relating to the
10% senior notes contains covenants, including, without
limitation, restrictions on Loral Orions ability to pay
dividends or make loans to Loral.

In connection with the consummation of the
exchange offer, LSC canceled its $79.7 million intercompany
note issued to it by Loral Orion, which ranked pari passu to the
senior debt, in exchange for the transfer of Loral Orions
data services business and the issuance of a new note to LSC in
the principal amount of $29.7 million due 2006, having an
interest rate of 10% per annum payable in kind, subordinated to
Loral Orions 10% senior notes.

The Loral Orion 11.25% senior notes were due in
2007 and require interest payments semi-annually. The 12.5%
senior discount notes were due in 2007 and require interest
payments semi-annually commencing on July 15, 2002. In
connection with the Loral Orion acquisition in 1998, the
carrying value of the senior notes and senior discount notes
were increased to reflect a fair value adjustment based on
quoted market prices at the date of acquisition. Such adjustment
resulted in effective interest rates of 8.69% and 9.69% on the
senior notes and senior discount notes, respectively, through
maturity. Along with the issuance of each 11.25% senior note and
12.5% senior discount note, one warrant was originally issued to
purchase shares of common stock. Upon the acquisition of Loral
Orion, each warrant was converted so that it could purchase
shares of Loral common stock. As of December 31, 2003,
exercisable warrants for 4,530 shares of Loral common stock at
an exercise price of $0.23 per share under the Loral Orion
11.25% senior notes and 8,397 shares of Loral common stock at an
exercise price of $0.30 per share under the Loral Orion 12.5%
senior discount notes are yet to be exercised.

Loral and Loral Asia Pacific Satellite
(HK) Limited (Loral HK Sub) have
unconditionally guaranteed, and the Companys future
restricted subsidiaries will unconditionally guarantee, the 10%
senior notes, on a joint and several basis. Loral HK Sub
continues to provide a guarantee to the senior notes and senior
discount notes that remain outstanding. No restrictions exist on
the ability of Loral HK Sub and the Companys future
restricted subsidiaries, to pay dividends or make other
distributions to Loral Orion, except to the extent provided by
law generally (e.g., adequate capital to pay dividends under
state corporate laws). However, Loral Orion and its Debtor
Subsidiaries will not pay any dividends or make any
distributions during the pendency of the Chapter 11 Cases.

36



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                              
|-- | ---------------------------------------------
|7. | Reorganization Expenses Due to
    Bankruptcy

Reorganization expenses due to bankruptcy for the
period from July 15, 2003 (filing date) to
December 31, 2003 include professional fees associated with
bankruptcy services and employee retention costs, both allocated
to the Company from Loral (see Note 11), and interest income and
were as follows (in thousands):

|                         |                                                 |   |       |       | 
|------------------------ | ----------------------------------------------- | - | ----- | ----- | 
|Professional fees        |                                                 | $ | 5,464 |      
|Employee retention costs |                                                 |   | 280   |      
|Interest income          |                                                 |   | (183  | )    
|                         |                                                 |   |       |      
|                         | Total reorganization expenses due to bankruptcy |   | $     | 5,561 | 
|                         |                                                 |   |       |      



|   |                                     
|-- | ------------------------------------
|8. | Fair Values of Financial Instruments

As of December 31, 2003, the carrying value
of Loral Orions debt obligations was $920 million and
the fair value of such debt was $529 million. As of
December 31, 2002, the carrying value of Loral Orions
debt obligations was $952 million and the fair value of
such debt was $279 million. The fair value of Loral
Orions debt obligations is primarily based on quoted
market prices (the fair value for the 11.25% and 12.5% senior
notes was based on the quoted market price of the 10% senior
notes, as there was no active market for those senior notes).
Approximately $214 million and $245 million of the
difference between the carrying amount and the fair value of our
debt obligations as of December 31, 2003 and 2002,
respectively, is attributable to the accounting for Loral
Orions exchange offers (see Note 6).



|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies

In November 1995, a component on Telstar 11
malfunctioned, resulting in a 2-hour service interruption. The
malfunctioning component supported nine transponders serving the
European portion of Telstar 11s footprint. Full
service was restored using a back-up component. If that back-up
component fails, Telstar 11 would lose a significant amount of
usable capacity. In such event, the Company could lease
replacement capacity and function as a reseller with respect to
such capacity. In addition, Loral Orion did not renew its
in-orbit insurance policy due to the high cost of such insurance
and the relative age of the satellite. As of December 31,
2003, the net book value of Testar 11 was $42 million and
its end of life, as determined in the fourth quarter of 2003,
was June 2004, which is earlier than its previously expected end
of life of March 2005.

Telstar 12, originally intended to operate at 12
degrees W.L., was launched aboard an Ariane launch vehicle in
October 1999 into the orbital slot located at 15 degrees
W.L., and commenced operations in January 2000. Under an
agreement reached with Eutelsat, Loral Orion agreed to operate
Telstar 12 at 15 degrees W.L. while Eutelsat continues
to develop its services at 12.5 degrees W.L. Eutelsat
has in turn agreed not to use its 14.8 degrees
W.L. orbital slot and to assert its priority rights at such
location on Loral Orions behalf. As part of this
coordination effort, Loral Orion agreed to provide to Eutelsat
four 54 MHz transponders on Telstar 12 for the life of
the satellite and has retained risk of loss with respect to
those transponders. Eutelsat also has the right to acquire, at
cost, four transponders on the next replacement satellite for
Telstar 12. As part of the international coordination
process, Loral Orion continues to conduct discussions with
various administrations regarding Telstar 12s operations
at 15 degrees W.L. If these discussions are not successful,
Telstar 12s useable capacity may be reduced.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot assure that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in

37



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                
|-- | -----------------------------------------------
|9. | Commitments and
    Contingencies  (Continued)

the past. The Companys Telstar 10/ Apstar
IIR and Telstar 12 satellites have the same solar array
configuration as one other 1300-class satellite manufactured by
SS/ L that has experienced an event with a large loss of solar
power. SS/ L believes that this failure is an isolated event and
does not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, the Company does
not believe that this anomaly will affect Telstar 10/ Apstar IIR
or Telstar 12. The insurance coverage for Telstar 10/
Apstar IIR, however, provides for coverage of losses due to
solar array failures only in the event of a capacity loss of 80%
or more. The Company believes that the insurers will require
either exclusions of, or limitations on, coverage due to solar
array failures in connection with renewals of insurance for
these two satellites each year. An uninsured loss of a satellite
would have a material adverse effect on the Companys
consolidated financial position and its results of operations.

On September 20, 2002, and as further
amended in March 2003, Loral Orion agreed with APT Satellite
Company Limited (APT) to jointly acquire the Apstar
V satellite, a satellite then under construction by SS/ L for
APT pursuant to which Loral Orion and APT agreed to share, on a
50/50 basis, the project cost of constructing, launching and
insuring the satellite. Under this agreement, Loral Orion was to
initially acquire 23% of the satellite in return for paying 25%
of the project cost, and was to pay to APT over time an
additional 25% of the project cost to acquire an additional 23%
interest in the satellite. Loral SpaceCom has agreed to purchase
from Loral Orion 4.75 of such transponders, together with a
lease of an additional transponder for an approximate two-year
period from the satellites in-service date, at a price
equal to 12.5% of the project cost of the satellite. At
December 31, 2003, the project cost of the satellite was
estimated at $230 million.

In August 2003, in order to expedite the receipt
of necessary export licenses from the U.S. government,
Loral Orion and APT amended their various agreements to convert
their arrangement from a joint ownership arrangement to a lease
arrangement, but leaving unchanged the cost allocation between
the parties relating to the project cost of the satellite. Under
this arrangement, Loral Orion retains title to the entire
satellite (less the transponders to be transferred to Loral
SpaceCom as described above), now known as Telstar 18, and will
lease to APT transponders representing initially 77% of the
transponder capacity on the satellite. The number of
transponders leased to APT would be reduced over time upon
repayment by Loral Orion of the second 25% of the
satellites project cost, ultimately to 54% of the
satellites transponder capacity.

In November 2003, Loral Orion and APT agreed to
further revise their existing arrangement. Under this revised
arrangement, Loral Orion agreed, among other things, to
accelerate the termination of APTs leasehold interest in
4.5 transponders by assuming $20.4 million of project
cost which otherwise would have been initially paid by APT,
decreasing APTs initial leased transponder capacity from
77% to 69%. In addition, Loral Orion will provide to APT, free
of charge, available capacity on Telstar 10/ Apstar IIR, during
an interim period, and provide APT with certain rights to
exchange Ku-band transponder capacity on Telstar 18 for
equivalent Ku-band transponder capacity on Telstar 10/ Apstar
IIR. These arrangements were approved by the Bankruptcy Court in
November 2003, and, as a result Loral Orion recorded an
increase to self constructed assets and long-term liabilities of
$119 million, representing future obligations to APT.

The Company is subject to various other legal
proceedings and claims, either asserted or unasserted, that
arise in the ordinary course of business. Although the outcome
of these claims cannot be predicted with certainty, the Company
does not believe that any of these other existing legal matters
will have a material adverse effect on its consolidated
financial position or results of operations. These claims
against the Company are subject to the automatic stay as a
result of the commencement of the Chapter 11 Cases.

38



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                     
|--- | --------------------
|10. | Customer Information

The following table presents revenues by country
based on customer location for each of the three years in the
period ended December 31, 2003 (in thousands).

|                |               |                         |        |        |  |      |        |         |  |   |        |         | 
|--------------- | ------------- | ----------------------- | ------ | ------ |  | ---- | ------ | ------- |  | - | ------ | ------- | 
|                |               |                        
|                |               | Year ended December 31,
|                |               |                        
|                |               | 2003                    |        | 2002   |  | 2001
|                |               |                         |        |        |  |     
|United States   |               | $                       | 58,413 |        |  | $    | 62,291 |         |  | $ | 61,216 |        
|The Netherlands |               |                         | 9,033  |        |  |      | 9,160  |         |  |   | 9,239  |        
|Germany         |               |                         | 6,282  |        |  |      | 6,762  |         |  |   | 5,781  |        
|China           |               |                         | 4,594  |        |  |      | 6,251  |         |  |   | 7,511  |        
|United Kingdom  |               |                         | 3,679  |        |  |      | 5,024  |         |  |   | 4,133  |        
|Singapore       |               |                         | 3,592  |        |  |      | 4,496  |         |  |   | 6,139  |        
|Taiwan          |               |                         | 3,129  |        |  |      | 10,927 |         |  |   | 9,537  |        
|Other           |               |                         | 4,856  |        |  |      | 4,828  |         |  |   | 5,389  |        
|                |               |                         |        |        |  |      |        |         |  |   |        |        
|                | Total revenue |                         | $      | 93,578 |  |      | $      | 109,739 |  |   | $      | 108,945 | 
|                |               |                         |        |        |  |      |        |         |  |   |        |        

U.S. revenues for 2003 and 2002, include
$11.2 million and $13.2 million, respectively, to
affiliated companies.

With the exception of the Companys
satellites in orbit, the Companys long-lived assets are
primarily located in the United States.



|    |                           
|--- | --------------------------
|11. | Related Party Transactions

Due from (to) Loral companies consist of the
following (in thousands):

|                                           |  |              |         |              |  |   |         |  
|------------------------------------------ |  | ------------ | ------- | ------------ |  | - | ------- | -
|                                           |  | December 31, |         | December 31,
|                                           |  | 2003         |         | 2002        
|                                           |  |              |         |             
|Loral Space and Communications Corporation |  | $            | 43,656  |              |  | $ | 43,772  |  
|Loral Skynet Network Services, Inc.        |  |              | 9,128   |              |  |   | 8,805   |  
|Loral SpaceCom Corporation (LSC)         |  |              | (29,299 | )            |  |   | (23,977 | )
|Loral Skynet                               |  |              | (21,723 | )            |  |   | (7,854  | )
|Space Systems/ Loral (SS/ L)             |  |              | 6,817   |              |  |   | (14,892 | )
|                                           |  |              |         |              |  |   |         |  
|                                           |  | $            | 8,579   |              |  | $ | 5,854   |  
|                                           |  |              |         |              |  |   |         |  

As a result of the uncertainty regarding
collectibility, due to Loral Space & Communications
Corporation, Loral Skynet Network Services, Inc. (formerly known
as Loral Cyberstar, Inc.) and SS/ L filing voluntary petitions
for reorganization, the Companys receivables due from
Loral Space & Communications Corporation, Loral Skynet
Network Services, Inc. and SS/ L (aggregating $59.6 million
as of December 31, 2003) have been reflected as debit
balances in stockholders deficit. Liabilities due to
related parties of $33.3 million have been included in
liabilities subject to compromise as of December 31, 2003
(see Note 5).

The Company has a note payable outstanding with
LSC in the principal amount of $29.7 million due 2006,
having an interest rate of 10% per annum payable in kind,
subordinated to Loral Orions 10% senior notes. As of
December 31, 2003, the balance of the note was
$33.1 million, including accrued interest which is included
in liabilities subject to compromise (see Note 5).

39



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                             
|--- | --------------------------------------------
|11. | Related Party
    Transactions  (Continued)

Pursuant to the tax sharing agreements entered
into each year between Loral Orion and Loral Space &
Communications Corporation, Loral Space &
Communications Corporation has agreed to reimburse Loral Orion
for the use of its tax losses to the extent such losses provide
a tax benefit to Loral Space & Communications
Corporation; otherwise, Loral Orion has agreed to pay its
separate company tax liability to Loral Space &
Communications Corporation. As of December 31, 2003 and
2002, Loral Orion has a receivable from Loral Space &
Communications Corporation of $40.9 million and
$43.7 million, respectively, relating to the tax sharing
agreements.

Loral Orion and Loral Skynet have entered into
agreements (the Loral Skynet Agreements) effective
January 1, 1999, whereby Loral Skynet provides to Loral
Orion (i) marketing and sales of satellite capacity
services on the Loral Orion satellite network and related
billing and administration of customer contracts for those
services (the Sales Services) and
(ii) telemetry, tracking and control services for the Loral
Orion satellite network (the Technical Services, and
together with the Sales Services, the Services).
Loral Orion is charged Loral Skynets costs for providing
these services plus a 5 percent administrative fee.
Effective September 1, 2003, the Loral Skynet Agreements
were amended to reflect a price increase, which is expected to
increase the cost to Loral Orion by approximately
$15.0 million per year. The increase in the cost to Loral
Orion during the period from September 1, 2003 to
December 31, 2003 was approximately $5.0 million. The
costs charged to Loral Orion amounted to $13.0 million in
2003, $9.5 million for 2002 and $9.1 million for 2001.

Beginning in 2002, as a result of renegotiations
with its lenders, Loral initiated the allocation of corporate
management expenses to its individual subsidiaries and
divisions, including Loral Orion. The allocation of these
expenses is computed with respect to Loral Orion in a manner
consistent with Lorals other subsidiaries and divisions,
using a fixed formula based on three factors: employee payroll,
revenues and assets. Through 2001, Loral did not allocate
general corporate management expenses to Loral Orion or any of
Lorals other subsidiaries. This treatment was consistent
with agreements with lenders that existed at that time, and with
Lorals internal accounting for performance measurement
purposes. Nonetheless, Loral did and continues to charge
subsidiaries for specific expenses incurred by the Loral
corporate office that are specifically identifiable to the
subsidiaries (e.g. outside legal fees). These expenses were and
continue to be reflected in the subsidiaries income
statements. The allocation to Loral Orion for the years ended
December 31, 2003 and 2002 was $3.4 million and
$3.1 million, respectively. If Loral made these allocations
in 2001, Loral Orion would have been allocated $2.9 million
by Loral.

Beginning in 2003, as a result of the Bankruptcy
filing, Loral initiated the allocation of its professional fees
and retention costs associated with the reorganization. The
allocation of these expenses is computed with respect to Loral
Orion in a manner consistent with Lorals other debtor
subsidiaries and divisions, using a fixed formula based on debt
outstanding as of July 15, 2003. The allocation to Loral
Orion for the period July 15, 2003 to December 31,
2003 was $5.5 million of professional fees and
$0.3 million of retention costs.

SS/ L, a subsidiary of Loral SpaceCom, built the
Companys Telstar 12 satellite that was launched in
October 1999. The Company made payments to SS/ L during 2001
totaling approximately $8.1 million for construction,
launch and insurance costs. In addition, the Company made
payments to SS/ L for the construction of the Apstar V
satellite in the amount of $40.2 million and
$2.9 million in 2003 and 2002, respectively.

In December 1999, in connection with a
contractual arrangement between SS/ L and one of SS/ Ls
customers, Loral Orion agreed to lease to SS/ L the capacity of
three transponders on Telstar 10/ Apstar IIR through the end of
its life. Under this arrangement, Loral Orion recorded revenue
of $4.2 in 2003 and 2002

40



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                             
|--- | --------------------------------------------
|11. | Related Party
    Transactions  (Continued)

and 2001. Under another arrangement with SS/ L,
Loral Orion recorded revenue of $2.5 million in 2001
related to transponder capacity for another customer.



|    |                        
|--- | -----------------------
|12. | Discontinued Operations

The historical consolidated statements of
operations and cash flows reflects the data services business as
a discontinued operation. The financial data presented for the
Companys data services business reflects the historical
sales and expenses of the data services segment after
elimination of intercompany transactions with Satellite
Services. Discontinued operations include revenue for the data
services segment of $80.2 million for the period
January 1, 2001 to December 21, 2001. Amounts incurred
for transponder capacity leased from Loral Skynet totaled
$3.0 million in 2001 and is included in the results of
discontinued operations.



|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other Subsidiaries

Loral Orions (the Issuer
Company) 10% Senior Notes due 2006 are fully and
unconditionally guaranteed, on a joint and several basis, by
several of its wholly-owned subsidiaries (the Guarantor
Subsidiaries) and Loral (Issuers
Parent). The Companys remaining original senior
notes and senior discount notes are fully and unconditionally
guaranteed, on a joint and several basis, by the Guarantor
Subsidiaries and substantially all of the other wholly-owned
subsidiaries (the Other Subsidiaries). The Issuer
Company, Issuers Parent, the Guarantor Subsidiaries and
certain other non-guarantor subsidiaries of Loral Orion filed
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code on July 15, 2003.

Presented below is condensed consolidating
financial information for the Issuer Company, Issuers
Parent, the Guarantor Subsidiaries and the Other Subsidiaries
for the years ended December 31, 2003, 2002 and 2001. The
Other Subsidiaries were part of the Companys data services
segment which was transferred on December 21, 2001 to a
subsidiary of Loral (see Note 6) and have been accounted
for as a discontinued operation. The condensed consolidating
financial information has been presented to show the nature of
assets held, results of operations and cash flows of the Issuer
Company, Issuers Parent, Guarantor Subsidiaries and Other
Subsidiaries. The supplemental condensed consolidating financial
information reflects the investments of the Issuer Company in
the Guarantor Subsidiary and the Other Subsidiaries using the
equity method of accounting. The Companys significant
transactions with its subsidiaries other than the investment
account and related equity in net loss of unconsolidated
subsidiaries are the intercompany payables and receivables
between its subsidiaries. As a result of filing Chapter 11,
the accrual of interest on all related party notes in the
following condensed consolidating financial statements was
suspended.

41



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2003


(in thousands)


|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |            |       |          |  
|------------------------------------------ | ----------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------- | ---------- | ----- | ------------ | -------- | ------------ | ----- | ------------ | -------- | ------------ | - | ------- | - | - | - | - | -------- | ---------- | ------ | ------- | --------- | ---------- | ----- | -------- | -
|                                           |                                           | Issuer                                                                  |                                                          | Issuers   |       | Guarantor    |          | Other        |       |              |          |             
|                                           |                                           | Company                                                                 |                                                          | Parent     |       | Subsidiaries |          | Subsidiaries |       | Eliminations |          | Consolidated
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |             
|Current assets:                            |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           | Cash and cash equivalents                 |                                                                         | $                                                        | 46,831     |       |              | $        | 4,481        |       |              | $        |             |   |         | $ |  |   |   | $        | (4,481     | )      |         | $         | 46,831     |      
|                                           | Accounts receivable, net                  |                                                                         |                                                          | 6,912      |       |              |          |             |       |              |          | 968          |   |         |   |  |   |   |          |           |        |         |           | 7,880      |      
|                                           | Prepaid expenses and other current assets |                                                                         |                                                          | 2,925      |       |              |          | 2,341        |       |              |          | 5,859        |   |         |   |  |   |   |          | (3,320     | )      |         |           | 7,805      |      
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total current assets                                     |            |       | 56,668       |          |              |       | 6,822        |          |              |   | 6,827   |   |   |   |  |          |            |        | (7,801  | )         |            |       | 62,516   |  
|Satellites and related equipment, net      |                                           |                                                                         | 390,649                                                  |            |       |              |         |              |       |              | 183,688  |              |   |         |  |   |   |   |         |            |        |         | 574,337   |           
|Due to (from) unconsolidated subsidiaries  |                                           |                                                                         | (24,622                                                  | )          |       |              | (3,055   | )            |       |              | 17,598   |              |   |         |  |   |   |   | (7,658   | )          |        |         | (17,737   | )         
|Investments in unconsolidated subsidiaries |                                           |                                                                         | 311,487                                                  |            |       |              | (375,795 | )            |       |              | (271,698 | )            |   |         |  |   |   |   | 336,006  |            |        |         |          |           
|Investments in and advances to affiliates  |                                           |                                                                         |                                                         |            |       |              | 20       |              |       |              |         |              |   |         |  |   |   |   | (20      | )          |        |         |          |           
|Other assets, net                          |                                           |                                                                         | 5,030                                                    |            |       |              | 4,253    |              |       |              | 549      |              |   |         |  |   |   |   | (4,253   | )          |        |         | 5,579     |           
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total assets                                             |            | $     | 739,212      |          |              | $     | (367,755     | )        |              | $ | (63,036 | ) |   | $ |  |          |            | $      | 316,274 |           |            | $     | 624,695  |  
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|Liabilities not subject to compromise:     |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           | Current liabilities:                      |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |            |      
|                                           |                                           | Accounts payable                                                        |                                                          | $          | 824   |              |          | $            |      |              |          | $            |  |         |   | $ |  |   |          | $          |       |         |           | $          | 824   |         
|                                           |                                           | Customer advances                                                       |                                                          |            | 1,508 |              |          |              |      |              |          |              |  |         |   |   |  |   |          |            |       |         |           |            | 1,508 |         
|                                           |                                           | Accrued interest, preferred dividends and other
    current liabilities |                                                          |            |      |              |          |              | 1,191 |              |          |              |  |         |   |   |  |   |          |            | (1,191 | )       |           |            |      |         
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total current liabilities                                |            |       | 2,332        |          |              |       | 1,191        |          |              |   |        |   |   |   |  |          |            |        | (1,191  | )         |            |       | 2,332    |  
|                                           | Long-term liabilities                     |                                                                         |                                                          | 118,878    |       |              |          | 52,233       |       |              |          | 13,835       |   |         |   |  |   |   |          | (66,068    | )      |         |           | 118,878    |      
|                                           | Customer advances                         |                                                                         |                                                          | 4,302      |       |              |          |             |       |              |          |             |   |         |   |  |   |   |          |           |        |         |           | 4,302      |      
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total liabilities not subject to compromise              |            |       | 125,512      |          |              |       | 53,424       |          |              |   | 13,835  |   |   |   |  |          |            |        | (67,259 | )         |            |       | 125,512  |  
|Liabilities subject to compromise          |                                           |                                                                         | 1,120,295                                                |            |       |              | 434,491  |              |       |              | (116,663 | )            |   |         |  |   |   |   | (434,491 | )          |        |         | 1,003,632 |           
|Stockholders (deficit) equity:            |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           | Common stock                              |                                                                         |                                                          |           |       |              |          | 4,413        |       |              |          |             |   |         |   |  |   |   |          | (4,413     | )      |         |           |           |      
|                                           | Paid-in capital                           |                                                                         |                                                          | 604,166    |       |              |          | 3,392,829    |       |              |          |             |   |         |   |  |   |   |          | (3,392,829 | )      |         |           | 604,166    |      
|                                           | Treasury stock, at cost                   |                                                                         |                                                          |           |       |              |          | (3,360       | )     |              |          |             |   |         |   |  |   |   |          | 3,360      |        |         |           |           |      
|                                           | Unearned compensation                     |                                                                         |                                                          |           |       |              |          | (168         | )     |              |          |             |   |         |   |  |   |   |          | 168        |        |         |           |           |      
|                                           | Due from Loral companies                  |                                                                         |                                                          | (59,601    | )     |              |          |             |       |              |          |             |   |         |   |  |   |   |          |           |        |         |           | (59,601    | )    
|                                           | Retained deficit                          |                                                                         |                                                          | (1,051,160 | )     |              |          | (4,171,536   | )     |              |          | 39,792       |   |         |   |  |   |   |          | 4,133,890  |        |         |           | (1,049,014 | )    
|                                           | Accumulated other comprehensive income    |                                                                         |                                                          |           |       |              |          | (77,848      | )     |              |          |             |   |         |   |  |   |   |          | 77,848     |        |         |           |           |      
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total stockholders (deficit) equity                     |            |       | (506,595     | )        |              |       | (855,670     | )        |              |   | 39,792  |   |   |   |  |          |            |        | 818,024 |           |            |       | (504,449 | )
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           
|                                           |                                           |                                                                         | Total liabilities and stockholders
    (deficit) equity |            | $     | 739,212      |          |              | $     | (367,755     | )        |              | $ | (63,036 | ) |   | $ |  |          |            | $      | 316,274 |           |            | $     | 624,695  |  
|                                           |                                           |                                                                         |                                                          |            |       |              |          |              |       |              |          |              |   |         |   |   |   |   |          |            |        |         |           |           

42



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2003


(in thousands)


|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | -------- |  | ------------ | -------- | ------------ |  | ------------ | ------ | ------------ |  | - | - |  |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                                                      |  | Issuer  |         | Issuers |  | Guarantor    |          | Other        |  |              |        |             
|                                                                                                                                                                      |  | Company |         | Parent   |  | Subsidiaries |          | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |             
|Revenues from satellite services                                                                                                                                      |  | $       | 86,119  |          |  | $            |         |              |  | $            | 39,828 |              |  | $ |  |  |  | $ | (32,369 | ) |  | $ | 93,578  |  
|Cost of satellite services                                                                                                                                            |  |         | 111,509 |          |  |              |         |              |  |              | 31,523 |              |  |   |  |  |  |   | (32,369 | ) |  |   | 110,663 |  
|Selling, general and administrative expenses                                                                                                                          |  |         | 10,192  |          |  |              | 8,937    |              |  |              | 3,572  |              |  |   |  |  |  |   | (8,938  | ) |  |   | 13,763  |  
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|Operating (loss) income before reorganization
    expenses                                                                                                            |  |         | (35,582 | )        |  |              | (8,937   | )            |  |              | 4,733  |              |  |   |  |  |  |   | 8,938   |   |  |   | (30,848 | )
|Reorganization expenses                                                                                                                                               |  |         | (5,561  | )        |  |              | (1,900   | )            |  |              |       |              |  |   |  |  |  |   | 1,900   |   |  |   | (5,561  | )
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|Operating (loss) income                                                                                                                                               |  |         | (41,143 | )        |  |              | (10,837  | )            |  |              | 4,733  |              |  |   |  |  |  |   | 10,838  |   |  |   | (36,409 | )
|Interest expense                                                                                                                                                      |  |         | (6,522  | )        |  |              | (21,675  | )            |  |              |       |              |  |   |  |  |  |   | 21,675  |   |  |   | (6,522  | )
|Interest and investment income                                                                                                                                        |  |         | 18      |          |  |              | 12,198   |              |  |              |       |              |  |   |  |  |  |   | (12,198 | ) |  |   | 18      |  
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates and
    cumulative effect of change in accounting principle |  |         | (47,647 | )        |  |              | (20,314  | )            |  |              | 4,733  |              |  |   |  |  |  |   | 20,315  |   |  |   | (42,913 | )
|Income tax benefit (expense)                                                                                                                                          |  |         | (4,174  | )        |  |              | (3,656   | )            |  |              | (2,146 | )            |  |   |  |  |  |   | 7,057   |   |  |   | (2,919  | )
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates and cumulative effect
    of change in accounting principle               |  |         | (51,821 | )        |  |              | (23,970  | )            |  |              | 2,587  |              |  |   |  |  |  |   | 27,372  |   |  |   | (45,832 | )
|Equity in net income (losses) of
    unconsolidated subsidiaries                                                                                                      |  |         | 2,587   |          |  |              | (334,995 | )            |  |              |       |              |  |   |  |  |  |   | 332,408 |   |  |   |        |  
|Equity in net (losses) income of affiliates                                                                                                                           |  |         |        |          |  |              | (21,775  | )            |  |              |       |              |  |   |  |  |  |   | 21,775  |   |  |   |        |  
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                          |  |         | (49,234 | )        |  |              | (380,740 | )            |  |              | 2,587  |              |  |   |  |  |  |   | 381,555 |   |  |   | (45,832 | )
|Cumulative effect of change in
    accounting principle                                                                                                               |  |         |        |          |  |              | (1,970   | )            |  |              |       |              |  |   |  |  |  |   | 1,970   |   |  |   |        |  
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  
|Net (loss) income                                                                                                                                                     |  | $       | (49,234 | )        |  | $            | (382,710 | )            |  | $            | 2,587  |              |  | $ |  |  |  | $ | 383,525 |   |  | $ | (45,832 | )
|                                                                                                                                                                      |  |         |         |          |  |              |          |              |  |              |        |              |  |   |   |  |  |   |         |   |  |   |         |  

43



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended December 31, 2003


(in thousands)


|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |         |        |  
|---------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------- | ------- | -------- | ------ | ------------ | ------- | ------------ | ------- | ------------ | - | ------------ | ------- | - | - | - | - | - | ------- | ------- | -------- | - | ------- | ------- | ------ | -
|                                                           |                                                                | Issuer                                                  |         | Issuers |        | Guarantor    |         | Other        |         |              |   |             
|                                                           |                                                                | Company                                                 |         | Parent   |        | Subsidiaries |         | Subsidiaries |         | Eliminations |   | Consolidated
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |             
|Operating activities:                                      |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|                                                           | Net (loss) income                                              |                                                         | $       | (49,234  | )      |              | $       | (382,710     | )       |              | $ | 2,587        |         |   | $ |  |   |   | $       | 383,525 |          |   | $       | (45,832 | )     
|                                                           | Non-cash items:                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |         |       
|                                                           |                                                                | Cumulative effect of change in accounting
    principle |         |          |       |              |         |              | 1,970   |              |   |              |        |   |   |   |  |   |         |         | (1,970   | ) |         |         |       |  
|                                                           |                                                                | Equity in net losses of affiliates                      |         |          |       |              |         |              | 21,775  |              |   |              |        |   |   |   |  |   |         |         | (21,775  | ) |         |         |       |  
|                                                           |                                                                | Equity in net losses of unconsolidated
    subsidiaries |         |          | (2,587 | )            |         |              | 334,995 |              |   |              |        |   |   |   |  |   |         |         | (332,408 | ) |         |         |       |  
|                                                           |                                                                | Deferred taxes                                          |         |          |       |              |         |              | 3,656   |              |   |              | 3,401   |   |   |   |  |   |         |         | (7,057   | ) |         |         |       |  
|                                                           |                                                                | Depreciation and amortization                           |         |          | 68,532 |              |         |              |        |              |   |              | 21,013  |   |   |   |  |   |         |         |         |   |         |         | 89,545 |  
|                                                           |                                                                | Adjustment to revenue straightlining assessment         |         |          | 5,315  |              |         |              |        |              |   |              |        |   |   |   |  |   |         |         |         |   |         |         | 5,315  |  
|                                                           |                                                                | Provisions for bad debts                                |         |          | 1,601  |              |         |              |        |              |   |              | 329     |   |   |   |  |   |         |         |         |   |         |         | 1,930  |  
|                                                           |                                                                | Loss on equipment disposals                             |         |          | 2,151  |              |         |              |        |              |   |              |        |   |   |   |  |   |         |         |         |   |         |         | 2,151  |  
|                                                           |                                                                | Non-cash interest expense, net                          |         |          | 670    |              |         |              |        |              |   |              |        |   |   |   |  |   |         |         |         |   |         |         | 670    |  
|                                                           | Changes in operating assets and liabilities:                   |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |         |       
|                                                           |                                                                | Accounts receivable, net                                |         |          | (1,036 | )            |         |              |        |              |   |              | (1,159  | ) |   |   |  |   |         |         |         |   |         |         | (2,195 | )
|                                                           |                                                                | Due to (from) Loral companies, net                      |         |          | 25,870 |              |         |              | 2,080   |              |   |              | (28,595 | ) |   |   |  |   |         |         | (2,080   | ) |         |         | (2,725 | )
|                                                           |                                                                | Other current assets and other assets                   |         |          | 6,871  |              |         |              | (964    | )            |   |              | 2,871   |   |   |   |  |   |         |         | 1,032    |   |         |         | 9,810  |  
|                                                           |                                                                | Accounts payable                                        |         |          | 410    |              |         |              |        |              |   |              | (192    | ) |   |   |  |   |         |         |         |   |         |         | 218    |  
|                                                           |                                                                | Accrued interest and other current liabilities          |         |          | 435    |              |         |              | 1,253   |              |   |              |        |   |   |   |  |   |         |         | (1,253   | ) |         |         | 435    |  
|                                                           |                                                                | Customer advances                                       |         |          | (2,324 | )            |         |              |        |              |   |              | (324    | ) |   |   |  |   |         |         |         |   |         |         | (2,648 | )
|                                                           |                                                                | Other long-term liabilities                             |         |          | (1,738 | )            |         |              |        |              |   |              | 69      |   |   |   |  |   |         |         | (69      | ) |         |         | (1,738 | )
|                                                           |                                                                | Other                                                   |         |          |       |              |         |              | 67      |              |   |              |        |   |   |   |  |   |         |         | (67      | ) |         |         |       |  
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Net cash provided by (used in) operating
    activities    |                                                                |                                                         | 54,936  |          |        |              | (17,878 | )            |         |              |  |              |         |   |  |   |   |   | 17,878  |         |          |   | 54,936  |        
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Investing activities:                                      |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|                                                           | Capital expenditures                                           |                                                         |         | (20,434  | )      |              |         |             |         |              |   |             |         |   |   |  |   |   |         |        |          |   |         | (20,434 | )     
|                                                           | Investments in and advances to unconsolidated
    subsidiaries |                                                         |         |         |        |              |         | (288         | )       |              |   |             |         |   |   |  |   |   |         | 288     |          |   |         |        |       
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Net cash (used in) provided by in investing
    activities |                                                                |                                                         | (20,434 | )        |        |              | (288    | )            |         |              |  |              |         |   |  |   |   |   | 288     |         |          |   | (20,434 | )      
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Financing activities:                                      |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|                                                           | Interest payments on 10% senior notes                          |                                                         |         | (30,635  | )      |              |         |             |         |              |   |             |         |   |   |  |   |   |         |        |          |   |         | (30,635 | )     
|                                                           | Note receivable from unconsolidated affiliate                  |                                                         |         |         |        |              |         | 17,284       |         |              |   |             |         |   |   |  |   |   |         | (17,284 | )        |   |         |        |       
|                                                           | Proceeds from stock issuances                                  |                                                         |         |         |        |              |         | 3,849        |         |              |   |             |         |   |   |  |   |   |         | (3,849  | )        |   |         |        |       
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Net cash (used in) provided by financing
    activities    |                                                                |                                                         | (30,635 | )        |        |              | 21,133  |              |         |              |  |              |         |   |  |   |   |   | (21,133 | )       |          |   | (30,635 | )      
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|(Decrease) increase in cash and cash equivalents           |                                                                |                                                         | 3,867   |          |        |              | 2,967   |              |         |              |  |              |         |   |  |   |   |   | (2,967  | )       |          |   | 3,867   |        
|Cash and cash equivalents  beginning
    of period        |                                                                |                                                         | 42,964  |          |        |              | 1,514   |              |         |              |  |              |         |   |  |   |   |   | (1,514  | )       |          |   | 42,964  |        
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        
|Cash and cash equivalents  end of
    period              |                                                                | $                                                       | 46,831  |          |        | $            | 4,481   |              |         | $            |  |              |         | $ |  |   |   | $ | (4,481  | )       |          | $ | 46,831  |        
|                                                           |                                                                |                                                         |         |          |        |              |         |              |         |              |   |              |         |   |   |   |   |   |         |         |          |   |         |        

44



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING BALANCE
SHEET

December 31, 2002


(in thousands)


|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |            |          |  
|------------------------------------------------------------------ | ----------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ---------- | -------- | ------------ | ------- | ------------ | -------- | ------------ | -------- | ------------ | ------ |  | - | - | - |  | -------- | ---------- | -------- | - | ------- | ---------- | -------- | -
|                                                                   |                                                                         | Issuer                                                   |         | Issuers   |          | Guarantor    |         | Other        |          |              |          |             
|                                                                   |                                                                         | Company                                                  |         | Parent     |          | Subsidiaries |         | Subsidiaries |          | Eliminations |          | Consolidated
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |             
|Current assets:                                                    |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   | Cash and cash equivalents                                               |                                                          | $       | 42,964     |          |              | $       | 1,514        |          |              | $        |             |        |  | $ |  |   |  | $        | (1,514     | )        |   | $       | 42,964     |         
|                                                                   | Accounts receivable, net                                                |                                                          |         | 7,477      |          |              |         |             |          |              |          | 138          |        |  |   |  |   |  |          |           |          |   |         | 7,615      |         
|                                                                   | Prepaid expenses and other current assets                               |                                                          |         | 5,540      |          |              |         | 823          |          |              |          | 8,584        |        |  |   |  |   |  |          | (1,734     | )        |   |         | 13,213     |         
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   |                                                                         | Total current assets                                     |         |            | 55,981   |              |         |              | 2,337    |              |          |              | 8,722  |  |   |   |  |  |          |            | (3,248   | ) |         |            | 63,792   |  
|Satellites and related equipment, net                              |                                                                         |                                                          | 319,998 |            |          |              |        |              |          |              | 204,701  |              |        |  |  |   |   |  |         |            |          |   | 524,699 |           
|Notes (payable to) receivable from unconsolidated
    subsidiaries |                                                                         |                                                          | (31,540 | )          |          |              | 157,500 |              |          |              |         |              |        |  |  |   |   |  | (157,500 | )          |          |   | (31,540 | )         
|Due to (from) unconsolidated subsidiaries                          |                                                                         |                                                          | (97,652 | )          |          |              | 36,448  |              |          |              | 107,917  |              |        |  |  |   |   |  | (40,859  | )          |          |   | 5,854   |           
|Investments in unconsolidated subsidiaries                         |                                                                         |                                                          | 304,590 |            |          |              | (20,185 | )            |          |              | (271,698 | )            |        |  |  |   |   |  | (12,707  | )          |          |   |        |           
|Investments in and advances to affiliates                          |                                                                         |                                                          |        |            |          |              | 21,507  |              |          |              |         |              |        |  |  |   |   |  | (21,507  | )          |          |   |        |           
|Other assets, net                                                  |                                                                         |                                                          | 16,622  |            |          |              | 3,191   |              |          |              | 696      |              |        |  |  |   |   |  | (3,191   | )          |          |   | 17,318  |           
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   |                                                                         | Total assets                                             |         | $          | 567,999  |              |         | $            | 200,798  |              |          | $            | 50,338 |  |   | $ |  |  |          | $          | (239,012 | ) |         | $          | 580,123  |  
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|Current liabilities:                                               |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   | Current portion of long-term debt                                       |                                                          | $       | 62,996     |          |              | $       |             |          |              | $        |             |        |  | $ |  |   |  | $        |           |          |   | $       | 62,996     |         
|                                                                   | Accounts payable                                                        |                                                          |         | 1,194      |          |              |         | 2,404        |          |              |          | 1,193        |        |  |   |  |   |  |          | (2,404     | )        |   |         | 2,387      |         
|                                                                   | Customer advances                                                       |                                                          |         | 1,208      |          |              |         |             |          |              |          | 521          |        |  |   |  |   |  |          | 2,002      |          |   |         | 3,731      |         
|                                                                   | Accrued interest, preferred dividends and other
    current liabilities |                                                          |         | 8,399      |          |              |         | 20,840       |          |              |          | 35           |        |  |   |  |   |  |          | (22,843    | )        |   |         | 6,431      |         
|                                                                   | Income taxes payable                                                    |                                                          |         |           |          |              |         | 8,123        |          |              |          |             |        |  |   |  |   |  |          | (8,123     | )        |   |         |           |         
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   |                                                                         | Total current liabilities                                |         |            | 73,797   |              |         |              | 31,367   |              |          |              | 1,749  |  |   |   |  |  |          |            | (31,368  | ) |         |            | 75,545   |  
|Long-term liabilities                                              |                                                                         |                                                          | 14,040  |            |          |              | 48,577  |              |          |              | 11,387   |              |        |  |  |   |   |  | (58,942  | )          |          |   | 15,062  |           
|Long-term debt                                                     |                                                                         |                                                          | 888,532 |            |          |              | 350,000 |              |          |              |         |              |        |  |  |   |   |  | (350,000 | )          |          |   | 888,532 |           
|6% Series C convertible redeemable preferred
    stock             |                                                                         |                                                          |        |            |          |              | 104,582 |              |          |              |         |              |        |  |  |   |   |  | (104,582 | )          |          |   |        |           
|6% Series D convertible redeemable preferred
    stock             |                                                                         |                                                          |        |            |          |              | 20,499  |              |          |              |         |              |        |  |  |   |   |  | (20,499  | )          |          |   |        |           
|Stockholders (deficit) equity:                                    |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   | 6% Series C convertible redeemable preferred
    stock                  |                                                          |         |           |          |              |         | 80,171       |          |              |          |             |        |  |   |  |   |  |          | (80,171    | )        |   |         |           |         
|                                                                   | 6% Series D convertible redeemable preferred
    stock                  |                                                          |         |           |          |              |         | 15,125       |          |              |          |             |        |  |   |  |   |  |          | (15,125    | )        |   |         |           |         
|                                                                   | Common stock                                                            |                                                          |         |           |          |              |         | 4,293        |          |              |          |             |        |  |   |  |   |  |          | (4,293     | )        |   |         |           |         
|                                                                   | Paid-in capital                                                         |                                                          |         | 604,166    |          |              |         | 3,389,035    |          |              |          |             |        |  |   |  |   |  |          | (3,389,035 | )        |   |         | 604,166    |         
|                                                                   | Treasury stock, at cost                                                 |                                                          |         |           |          |              |         | (3,360       | )        |              |          |             |        |  |   |  |   |  |          | 3,360      |          |   |         |           |         
|                                                                   | Unearned compensation                                                   |                                                          |         |           |          |              |         | (151         | )        |              |          |             |        |  |   |  |   |  |          | 151        |          |   |         |           |         
|                                                                   | Retained deficit                                                        |                                                          |         | (1,012,536 | )        |              |         | (3,782,107   | )        |              |          | 37,202       |        |  |   |  |   |  |          | 3,754,259  |          |   |         | (1,003,182 | )       
|                                                                   | Accumulated other comprehensive loss                                    |                                                          |         |           |          |              |         | (57,233      | )        |              |          |             |        |  |   |  |   |  |          | 57,233     |          |   |         |           |         
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   |                                                                         | Total stockholders (deficit) equity                     |         |            | (408,370 | )            |         |              | (354,227 | )            |          |              | 37,202 |  |   |   |  |  |          |            | 326,379  |   |         |            | (399,016 | )
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           
|                                                                   |                                                                         | Total liabilities and stockholders
    (deficit) equity |         | $          | 567,999  |              |         | $            | 200,798  |              |          | $            | 50,338 |  |   | $ |  |  |          | $          | (239,012 | ) |         | $          | 580,123  |  
|                                                                   |                                                                         |                                                          |         |            |          |              |         |              |          |              |          |              |        |  |   |   |   |  |          |            |          |   |         |           

45



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year Ended December 31, 2002


(in thousands)


|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | -------- | -------- |  | ------------ | ---------- | ------------ |  | ------------ | ------ | ------------ |  | - | - |  |  | - | --------- | - |  | - | -------- | -
|                                                                                                                                                                           |  | Issuer  |          | Issuers |  | Guarantor    |            | Other        |  |              |        |             
|                                                                                                                                                                           |  | Company |          | Parent   |  | Subsidiaries |            | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |             
|Revenues from satellite services                                                                                                                                           |  | $       | 99,717   |          |  | $            |           |              |  | $            | 48,198 |              |  | $ |  |  |  | $ | (38,176   | ) |  | $ | 109,739  |  
|Costs of satellite services                                                                                                                                                |  |         | 100,360  |          |  |              |           |              |  |              | 29,231 |              |  |   |  |  |  |   | (38,176   | ) |  |   | 91,415   |  
|Selling, general and administrative expenses                                                                                                                               |  |         | 10,089   |          |  |              | 7,198      |              |  |              | 964    |              |  |   |  |  |  |   | (7,198    | ) |  |   | 11,053   |  
|Management fee expense                                                                                                                                                     |  |         |         |          |  |              | 18         |              |  |              |       |              |  |   |  |  |  |   | (18       | ) |  |   |         |  
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|Operating income (loss)                                                                                                                                                    |  |         | (10,732  | )        |  |              | (7,216     | )            |  |              | 18,003 |              |  |   |  |  |  |   | 7,216     |   |  |   | 7,271    |  
|Interest and investment income                                                                                                                                             |  |         | 631      |          |  |              | 21,514     |              |  |              |       |              |  |   |  |  |  |   | (21,514   | ) |  |   | 631      |  
|Interest expense                                                                                                                                                           |  |         | (13,016  | )        |  |              | (39,327    | )            |  |              | 3      |              |  |   |  |  |  |   | 39,327    |   |  |   | (13,013  | )
|Loss on investment                                                                                                                                                         |  |         |         |          |  |              | (1,189     | )            |  |              |       |              |  |   |  |  |  |   | 1,189     |   |  |   |         |  
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before income taxes, equity in net
    losses of unconsolidated subsidiaries and affiliates, and
    cumulative effect of change in accounting principle     |  |         | (23,117  | )        |  |              | (26,218    | )            |  |              | 18,006 |              |  |   |  |  |  |   | 26,218    |   |  |   | (5,111   | )
|Income tax provision                                                                                                                                                       |  |         | (14,739  | )        |  |              | (6,398     | )            |  |              | (6,455 | )            |  |   |  |  |  |   | 11,541    |   |  |   | (16,051  | )
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest
    and cumulative effect of change in accounting principle |  |         | (37,856  | )        |  |              | (32,616    | )            |  |              | 11,551 |              |  |   |  |  |  |   | 37,759    |   |  |   | (21,162  | )
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                                                             |  |         | 11,551   |          |  |              | (1,360,150 | )            |  |              |       |              |  |   |  |  |  |   | 1,348,599 |   |  |   |         |  
|Equity in net losses of affiliates, net of taxes                                                                                                                           |  |         |         |          |  |              | (76,445    | )            |  |              |       |              |  |   |  |  |  |   | 76,445    |   |  |   |         |  
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                               |  |         | (26,305  | )        |  |              | (1,469,211 | )            |  |              | 11,551 |              |  |   |  |  |  |   | 1,462,803 |   |  |   | (21,162  | )
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                      |  |         | (562,201 | )        |  |              |           |              |  |              |       |              |  |   |  |  |  |   |          |   |  |   | (562,201 | )
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  
|Net (loss) income                                                                                                                                                          |  | $       | (588,506 | )        |  | $            | (1,469,211 | )            |  | $            | 11,551 |              |  | $ |  |  |  | $ | 1,462,803 |   |  | $ | (583,363 | )
|                                                                                                                                                                           |  |         |          |          |  |              |            |              |  |              |        |              |  |   |   |  |  |   |           |   |  |   |          |  

46



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year Ended December 31, 2002


(in thousands)


|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |         |  
|------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------- | -------- | ------- | ------------ | ------- | ------------ | --------- | ------------ | - | ------------ | ------- | - | - | - | - | - | ------- | --------- | ---------- | - | ------- | -------- | ------- | -
|                                                        |                                                                 | Issuer                                                                |         | Issuers |         | Guarantor    |         | Other        |           |              |   |             
|                                                        |                                                                 | Company                                                               |         | Parent   |         | Subsidiaries |         | Subsidiaries |           | Eliminations |   | Consolidated
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |             
|Operating activities:                                   |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                        | Net (loss) income                                               |                                                                       | $       | (588,506 | )       |              | $       | (1,469,211   | )         |              | $ | 11,551       |         |   | $ |  |   |   | $       | 1,462,803 |            |   | $       | (583,363 | )      
|                                                        | Non-cash items:                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |        
|                                                        |                                                                 | Equity in net losses of affiliates, net of taxes                      |         |          |        |              |         |              | 76,445    |              |   |              |        |   |   |   |  |   |         |           | (76,445    | ) |         |          |        |  
|                                                        |                                                                 | Cumulative effect of change in accounting
    principle, net of taxes |         |          | 562,201 |              |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | 562,201 |  
|                                                        |                                                                 | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |          | (11,551 | )            |         |              | 1,360,150 |              |   |              |        |   |   |   |  |   |         |           | (1,348,599 | ) |         |          |        |  
|                                                        |                                                                 | Deferred taxes                                                        |         |          | 32,130  |              |         |              | 6,214     |              |   |              | 5,143   |   |   |   |  |   |         |           | (11,357    | ) |         |          | 32,130  |  
|                                                        |                                                                 | Depreciation and amortization                                         |         |          | 54,279  |              |         |              | (47       | )            |   |              | 21,013  |   |   |   |  |   |         |           | 47         |   |         |          | 75,292  |  
|                                                        |                                                                 | Adjustment to revenue straightlining assessment                       |         |          | 387     |              |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | 387     |  
|                                                        |                                                                 | Provisions for bad debts                                              |         |          | 822     |              |         |              |          |              |   |              | (78     | ) |   |   |  |   |         |           |           |   |         |          | 744     |  
|                                                        |                                                                 | Loss on investments                                                   |         |          |        |              |         |              | 1,189     |              |   |              |        |   |   |   |  |   |         |           | (1,189     | ) |         |          |        |  
|                                                        |                                                                 | Non-cash interest expense, net                                        |         |          | 503     |              |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | 503     |  
|                                                        | Changes in operating assets and liabilities:                    |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |          |        
|                                                        |                                                                 | Accounts receivable, net                                              |         |          | 4,772   |              |         |              |          |              |   |              | 437     |   |   |   |  |   |         |           |           |   |         |          | 5,209   |  
|                                                        |                                                                 | Due to (from) unconsolidated subsidiaries                             |         |          | 33,882  |              |         |              | (17,135   | )            |   |              | (34,931 | ) |   |   |  |   |         |           | 17,135     |   |         |          | (1,049  | )
|                                                        |                                                                 | Other current assets and other assets                                 |         |          | 3,202   |              |         |              | 2,260     |              |   |              | (3,296  | ) |   |   |  |   |         |           | (2,260     | ) |         |          | (94     | )
|                                                        |                                                                 | Accounts payable                                                      |         |          | (1,484  | )            |         |              | (1,357    | )            |   |              | 481     |   |   |   |  |   |         |           | 1,357      |   |         |          | (1,003  | )
|                                                        |                                                                 | Accrued interest and other current liabilities                        |         |          | 2,382   |              |         |              | 715       |              |   |              |        |   |   |   |  |   |         |           | (715       | ) |         |          | 2,382   |  
|                                                        |                                                                 | Customer advances                                                     |         |          | (3,739  | )            |         |              |          |              |   |              | (320    | ) |   |   |  |   |         |           |           |   |         |          | (4,059  | )
|                                                        |                                                                 | Income taxes payable                                                  |         |          |        |              |         |              | 184       |              |   |              |        |   |   |   |  |   |         |           | (184       | ) |         |          |        |  
|                                                        |                                                                 | Other long-term liabilities                                           |         |          | (1,728  | )            |         |              |          |              |   |              |        |   |   |   |  |   |         |           |           |   |         |          | (1,728  | )
|                                                        |                                                                 | Other                                                                 |         |          |        |              |         |              | (2        | )            |   |              |        |   |   |   |  |   |         |           | 2          |   |         |          |        |  
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash provided by (used in) operating
    activities |                                                                 |                                                                       | 87,552  |          |         |              | (40,595 | )            |           |              |  |              |         |   |  |   |   |   | 40,595  |           |            |   | 87,552  |         
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Investing activities:                                   |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                        | Capital expenditures                                            |                                                                       |         | (18,033  | )       |              |         |             |           |              |   |             |         |   |   |  |   |   |         |          |            |   |         | (18,033  | )      
|                                                        | Investments in and advances to unconsolidated
    subsidiaries  |                                                                       |         |         |         |              |         | (2,243       | )         |              |   |             |         |   |   |  |   |   |         | 2,243     |            |   |         |         |        
|                                                        | Investments in and advances to affiliates                       |                                                                       |         |         |         |              |         | (11,479      | )         |              |   |             |         |   |   |  |   |   |         | 11,479    |            |   |         |         |        
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash used in investing activities                   |                                                                 |                                                                       | (18,033 | )        |         |              | (13,722 | )            |           |              |  |              |         |   |  |   |   |   | 13,722  |           |            |   | (18,033 | )       
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Financing activities:                                   |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|                                                        | Interest payments on 10% senior notes                           |                                                                       |         | (45,954  | )       |              |         |             |           |              |   |             |         |   |   |  |   |   |         |          |            |   |         | (45,954  | )      
|                                                        | Note payable to Loral subsidiary                                |                                                                       |         |         |         |              |         | 42,500       |           |              |   |             |         |   |   |  |   |   |         | (42,500   | )          |   |         |         |        
|                                                        | Preferred dividends                                             |                                                                       |         |         |         |              |         | (29,678      | )         |              |   |             |         |   |   |  |   |   |         | 29,678    |            |   |         |         |        
|                                                        | Preferred dividends on exchange offers and
    related expenses |                                                                       |         |         |         |              |         | (15,583      | )         |              |   |             |         |   |   |  |   |   |         | 15,583    |            |   |         |         |        
|                                                        | Proceeds from stock issuances                                   |                                                                       |         |         |         |              |         | 12,524       |           |              |   |             |         |   |   |  |   |   |         | (12,524   | )          |   |         |         |        
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Net cash (used in) provided by financing
    activities |                                                                 |                                                                       | (45,954 | )        |         |              | 9,763   |              |           |              |  |              |         |   |  |   |   |   | (9,763  | )         |            |   | (45,954 | )       
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Increase (decrease) in cash and cash
    equivalents    |                                                                 |                                                                       | 23,565  |          |         |              | (44,554 | )            |           |              |  |              |         |   |  |   |   |   | 44,554  |           |            |   | 23,565  |         
|Cash and cash equivalents  beginning of
    period     |                                                                 |                                                                       | 19,399  |          |         |              | 46,068  |              |           |              |  |              |         |   |  |   |   |   | (46,068 | )         |            |   | 19,399  |         
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         
|Cash and cash equivalents  end of period               |                                                                 | $                                                                     | 42,964  |          |         | $            | 1,514   |              |           | $            |  |              |         | $ |  |   |   | $ | (1,514  | )         |            | $ | 42,964  |         
|                                                        |                                                                 |                                                                       |         |          |         |              |         |              |           |              |   |              |         |   |   |   |   |   |         |           |            |   |         |         

47



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##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2001

(in thousands)


|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | -------- |  | ------------ | -------- | ------------ |  | ------------ | ------ | ------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                            |  | Issuer  |         | Issuers |  | Guarantor    |          | Other        |  |              |        |             
|                                                                                                                                            |  | Company |         | Parent   |  | Subsidiaries |          | Subsidiaries |  | Eliminations |        | Consolidated
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |             
|Revenues from satellite services                                                                                                            |  | $       | 96,623  |          |  | $            |         |              |  | $            | 51,461 |              |  | $ |       |   |  | $ | (39,139 | ) |  | $ | 108,945 |  
|Costs of satellite services                                                                                                                 |  |         | 119,917 |          |  |              |         |              |  |              | 26,407 |              |  |   |       |   |  |   | (39,139 | ) |  |   | 107,185 |  
|Selling, general and administrative expenses                                                                                                |  |         | 10,796  |          |  |              | 1,243    |              |  |              |       |              |  |   |       |   |  |   | (1,243  | ) |  |   | 10,796  |  
|Management fee expense                                                                                                                      |  |         |        |          |  |              | 36,730   |              |  |              |       |              |  |   |       |   |  |   | (36,730 | ) |  |   |        |  
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|Operating (loss) income                                                                                                                     |  |         | (34,090 | )        |  |              | (37,973  | )            |  |              | 25,054 |              |  |   |       |   |  |   | 37,973  |   |  |   | (9,036  | )
|Interest and investment income                                                                                                              |  |         | 644     |          |  |              | 23,238   |              |  |              | 9      |              |  |   |       |   |  |   | (23,238 | ) |  |   | 653     |  
|Interest expense                                                                                                                            |  |         | (98,310 | )        |  |              | (37,629  | )            |  |              | (29    | )            |  |   |       |   |  |   | 37,629  |   |  |   | (98,339 | )
|Gain on debt exchanges                                                                                                                      |  |         | 34,541  |          |  |              |         |              |  |              |       |              |  |   |       |   |  |   |        |   |  |   | 34,541  |  
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income from continuing operations before
    income taxes and equity in net losses of unconsolidated
    subsidiaries and affiliates |  |         | (97,215 | )        |  |              | (52,364  | )            |  |              | 25,034 |              |  |   |       |   |  |   | 52,364  |   |  |   | (72,181 | )
|Income tax provision                                                                                                                        |  |         | (1,744  | )        |  |              | (6,315   | )            |  |              | (8,762 | )            |  |   |       |   |  |   | 12,832  |   |  |   | (3,989  | )
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income from continuing operations before
    equity in net losses of unconsolidated subsidiaries
    and affiliates                  |  |         | (98,959 | )        |  |              | (58,679  | )            |  |              | 16,272 |              |  |   |       |   |  |   | 65,196  |   |  |   | (76,170 | )
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                              |  |         | 11,950  |          |  |              | (66,128  | )            |  |              |       |              |  |   |       |   |  |   | 54,178  |   |  |   |        |  
|Equity in net losses of affiliates, net of Taxes                                                                                            |  |         |        |          |  |              | (71,653  | )            |  |              |       |              |  |   |       |   |  |   | 71,653  |   |  |   |        |  
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|(Loss) income from continuing operations                                                                                                    |  |         | (87,009 | )        |  |              | (196,460 | )            |  |              | 16,272 |              |  |   |       |   |  |   | 191,027 |   |  |   | (76,170 | )
|Loss from discontinued operations                                                                                                           |  |         | (7,765  | )        |  |              |         |              |  |              |       |              |  |   | (4,322 | ) |  |   |        |   |  |   | (12,087 | )
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  
|Net (loss) income                                                                                                                           |  | $       | (94,774 | )        |  | $            | (196,460 | )            |  | $            | 16,272 |              |  | $ | (4,322 | ) |  | $ | 191,027 |   |  | $ | (88,257 | )
|                                                                                                                                            |  |         |         |          |  |              |          |              |  |              |        |              |  |   |        |   |  |   |         |   |  |   |         |  

48



---



##### Table of Contents



LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|13. | Financial Information for the Issuers
    Parent, Guarantors and Other
    Subsidiaries  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

Year ended December 31, 2001


(in thousands)


|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |         |         |  
|--------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------- | ------- | -------- | ------- | ------------ | -------- | ------------ | ------ | ------------ | - | ------------ | ------ | - | - | ------ | ----- | - | -------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                      |                                                                | Issuer                                                              |         | Issuers |         | Guarantor    |          | Other        |        |              |   |             
|                                                                      |                                                                | Company                                                             |         | Parent   |         | Subsidiaries |          | Subsidiaries |        | Eliminations |   | Consolidated
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |             
|Operating activities:                                                 |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|                                                                      | Net (loss) income                                              |                                                                     | $       | (94,774  | )       |              | $        | (196,460     | )      |              | $ | 16,272       |        |   | $ | (4,322 | )     |   | $        | 191,027 |         |   | $       | (88,257 | )      
|                                                                      | Non-cash items:                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |         |        
|                                                                      |                                                                | Loss from discontinued operations                                   |         |          | 7,765   |              |          |              |      |              |   |              |      |   |   |        | 4,322 |   |          |         |       |   |         |         | 12,087  |  
|                                                                      |                                                                | Gain on debt exchanges                                              |         |          | (34,541 | )            |          |              |       |              |   |              |       |   |   |        |      |   |          |         |        |   |         |         | (34,541 | )
|                                                                      |                                                                | Equity in net loss of affiliates, net of taxes                      |         |          |        |              |          |              | 71,653 |              |   |              |       |   |   |        |      |   |          |         | (71,653 | ) |         |         |        |  
|                                                                      |                                                                | Equity in net loss of unconsolidated
    subsidiaries, net of taxes |         |          | (11,950 | )            |          |              | 66,128 |              |   |              |       |   |   |        |      |   |          |         | (54,178 | ) |         |         |        |  
|                                                                      |                                                                | Deferred taxes                                                      |         |          | 12,852  |              |          |              | 5,905  |              |   |              | 6,517  |   |   |        |      |   |          |         | (12,422 | ) |         |         | 12,852  |  
|                                                                      |                                                                | Depreciation and amortization                                       |         |          | 72,992  |              |          |              |       |              |   |              | 21,013 |   |   |        |      |   |          |         |         |   |         |         | 94,005  |  
|                                                                      |                                                                | Non-cash interest expense, net                                      |         |          | 39,609  |              |          |              |       |              |   |              |       |   |   |        |      |   |          |         |        |   |         |         | 39,609  |  
|                                                                      |                                                                | Provisions for bad debts                                            |         |          | 1,839   |              |          |              |       |              |   |              | (107   | ) |   |        |      |   |          |         |        |   |         |         | 1,732   |  
|Changes in operating assets and liabilities,
    net of acquisitions: |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|                                                                      | Accounts receivable, net                                       |                                                                     |         | (3,055   | )       |              |          |             |        |              |   | 1,312        |        |   |   |       |       |   |          |        |         |   |         | (1,743  | )      
|                                                                      | Deposits                                                       |                                                                     |         | 863      |         |              |          |             |        |              |   | (863         | )      |   |   |       |       |   |          |        |         |   |         |        |        
|                                                                      | Due to (from) unconsolidated subsidiaries                      |                                                                     |         | 58,281   |         |              |          | 6,075        |        |              |   | (38,795      | )      |   |   |       |       |   |          | (27,228 | )       |   |         | (1,667  | )      
|                                                                      | Other current assets and other assets                          |                                                                     |         | (4,972   | )       |              |          |             |        |              |   | (3,085       | )      |   |   |       |       |   |          | (794    | )       |   |         | (8,851  | )      
|                                                                      | Accounts payable                                               |                                                                     |         | (8,011   | )       |              |          | 96           |        |              |   |             |        |   |   |       |       |   |          | (96     | )       |   |         | (8,011  | )      
|                                                                      | Accrued interest and other current liabilities                 |                                                                     |         | 3,663    |         |              |          | (2,538       | )      |              |   | (2,166       | )      |   |   |       |       |   |          | 2,538   |         |   |         | 1,497   |        
|                                                                      | Customer advances                                              |                                                                     |         | 7,137    |         |              |          |             |        |              |   | (98          | )      |   |   |       |       |   |          |        |         |   |         | 7,039   |        
|                                                                      | Income taxes payable                                           |                                                                     |         |         |         |              |          | 402          |        |              |   |             |        |   |   |       |       |   |          | (402    | )       |   |         |        |        
|                                                                      | Long-term liabilities                                          |                                                                     |         | (2,160   | )       |              |          |             |        |              |   |             |        |   |   |       |       |   |          |        |         |   |         | (2,160  | )      
|                                                                      | Other                                                          |                                                                     |         |         |         |              |          | 918          |        |              |   |             |        |   |   |       |       |   |          | (918    | )       |   |         |        |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Net cash provided by (used in) operating
    activities               |                                                                |                                                                     | 45,538  |          |         |              | (47,821  | )            |        |              |  |              |        |   |  |        |       |   | 25,874   |         |         |   | 23,591  |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Net cash provided by discontinued operations                          |                                                                |                                                                     | 2,236   |          |         |              |         |              |        |              |  |              |        |   |  |        |       |   | 21,947   |         |         |   | 24,183  |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Investing activities:                                                 |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|                                                                      | Capital expenditures                                           |                                                                     |         | (579     | )       |              |          |             |        |              |   |             |        |   |   |       |       |   |          |        |         |   |         | (579    | )      
|                                                                      | Investments in and advances to affiliates                      |                                                                     |         |         |         |              |          | (19,668      | )      |              |   |             |        |   |   |       |       |   |          | 19,668  |         |   |         |        |        
|                                                                      | Investments in and advances to unconsolidated
    subsidiaries |                                                                     |         |         |         |              |          | (2,102       | )      |              |   |             |        |   |   |       |       |   |          | 2,102   |         |   |         |        |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Net cash used in investing activities                                 |                                                                |                                                                     | (579    | )        |         |              | (21,770  | )            |        |              |  |              |        |   |  |        |       |   | 21,770   |         |         |   | (579    | )      
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Financing activities:                                                 |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|                                                                      | Repayments of other long-term obligations                      |                                                                     |         | (2,332   | )       |              |          |             |        |              |   |             |        |   |   |       |       |   |          |        |         |   |         | (2,332  | )      
|                                                                      | Preferred dividends                                            |                                                                     |         |         |         |              |          | (52,218      | )      |              |   |             |        |   |   |       |       |   |          | 52,218  |         |   |         |        |        
|                                                                      | Proceeds from other stock issuances                            |                                                                     |         |         |         |              |          | 16,472       |        |              |   |             |        |   |   |       |       |   |          | (16,472 | )       |   |         |        |        
|                                                                      | Repayment of note due to Loral SpaceCom                        |                                                                     |         | (28,166  | )       |              |          |             |        |              |   |             |        |   |   |       |       |   |          |        |         |   |         | (28,166 | )      
|                                                                      | Equity contributed by Loral                                    |                                                                     |         | 2,700    |         |              |          |             |        |              |   |             |        |   |   |       |       |   |          |        |         |   |         | 2,700   |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Net cash used in financing activities                                 |                                                                |                                                                     | (27,798 | )        |         |              | (35,746  | )            |        |              |  |              |        |   |  |        |       |   | 35,746   |         |         |   | (27,798 | )      
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Increase (decrease) in cash and cash equivalents                      |                                                                |                                                                     | 19,397  |          |         |              | (105,337 | )            |        |              |  |              |        |   |  |        |       |   | 105,337  |         |         |   | 19,397  |        
|Cash and cash equivalents  beginning
    of Period                   |                                                                |                                                                     | 2       |          |         |              | 151,405  |              |        |              |  |              |        |   |  |        |       |   | (151,405 | )       |         |   | 2       |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        
|Cash and cash equivalents  end of
    period                         |                                                                | $                                                                   | 19,399  |          |         | $            | 46,068   |              |        | $            |  |              |        | $ |  |        |       | $ | (46,068  | )       |         | $ | 19,399  |        
|                                                                      |                                                                |                                                                     |         |          |         |              |          |              |        |              |   |              |        |   |   |        |       |   |          |         |         |   |         |        

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LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION


(A wholly owned subsidiary of Loral Space
& Communications Corporation)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                  
|--- | -------------------------------------------------
|14. | Selected Quarterly Financial Data
    (Unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2003
and 2002 (in thousands):

|                             |  |           |        |          |  |               |        |              |  |   |        |   |  |   |         |  
|---------------------------- |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                             |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                             |  |           |        |          |  |               |        |             
|Year Ended December 31, 2003 |  |           |        |          |  |               |        |              |  |   |        |   |  |   |         |  
|Revenues                     |  | $         | 25,197 |          |  | $             | 24,712 |              |  | $ | 24,398 |   |  | $ | 19,271  |  
|Operating (loss) income      |  |           | (2,723 | )        |  |               | 524    |              |  |   | (4,323 | ) |  |   | (29,887 | )
|Net loss                     |  |           | (5,620 | )        |  |               | (2,342 | )            |  |   | (4,973 | ) |  |   | (32,897 | )

|                                                                             |  |           |          |          |  |               |        |              |  |   |        |  |  |   |         |  
|---------------------------------------------------------------------------- |  | --------- | -------- | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------- | -
|                                                                             |  | March 31, |          | June 30, |  | September 30, |        | December 31,
|                                                                             |  |           |          |          |  |               |        |             
|Year Ended December 31, 2002                                                 |  |           |          |          |  |               |        |              |  |   |        |  |  |   |         |  
|Revenues                                                                     |  | $         | 29,621   |          |  | $             | 27,579 |              |  | $ | 25,776 |  |  | $ | 26,763  |  
|Income from operations                                                       |  |           | 3,747    |          |  |               | 1,815  |              |  |   | 333    |  |  |   | 1,376   |  
|Income (loss) before cumulative effect of change
    in accounting principle |  |           | 3,016    |          |  |               | (2,534 | )            |  |   | 753    |  |  |   | (22,397 | )
|Net (loss) income                                                            |  |           | (559,185 | )        |  |               | (2,534 | )            |  |   | 753    |  |  |   | (22,397 | )

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##### Table of Contents



INDEPENDENT AUDITORS REPORT ON
SUPPLEMENTAL SCHEDULE

To the Board of Directors and Stockholder of
Loral Orion, Inc. (a Debtor In Possession):

We have audited the consolidated financial
statements of Loral Orion, Inc. and its subsidiaries
(collectively, the Company) (a Debtor In Possession)
as of December 31, 2003 and 2002, and for each of the three
years in the period ended December 31, 2003 and have issued
our report thereon dated March 15, 2004 included elsewhere
in this Annual Report on Form 10-K. Our audits also
included the consolidated financial statement schedule of the
Company listed in Item 15 (a) (2) of this Annual
Report on Form 10-K. Our audits were conducted for the
purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. This consolidated
schedule is the responsibility of the Companys management.
Such consolidated schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in
all material respects when considered in relation to the basic
consolidated financial statements taken as a whole. The basic
consolidated financial statements have been prepared assuming
the Company will continue as a going concern; our report
thereon, included elsewhere in this Annual Report on
Form 10-K, includes explanatory paragraphs which indicate
that (1) the Company changed its method of accounting to
adopt the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002 and (2) the Company has
filed for reorganization under Chapter 11 of the Federal
Bankruptcy Code and that (i) the consolidated financial
statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings and (ii) the
aforementioned matter, among others, raises substantial doubt
about its ability to continue as a going concern.

DELOITTE & TOUCHE LLP

San Jose, California

March 15, 2004


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SCHEDULE II

LORAL ORION, INC. AND SUBSIDIARIES, A DEBTOR
IN POSSESSION

VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2003,
2002 and 2001


(in thousands)


|                                  |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|--------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | ----------- |  | ---------- | --- |  |  | - | ------ | - |  | - | ----- | 
|                                  |  |            |       |            |  |            |       |            
|                                  |  |            |       | Additions  |  |            |       |            
|                                  |  |            |       |            |  |            |       |            
|                                  |  | Balance at |       | Charged to |  | Charged to |       | Deductions  |  | Balance at
|                                  |  | Beginning  |       | Costs and  |  | Other      |       | From        |  | End of    
|Description                       |  | of Year    |       | Expenses   |  | Accounts   |       | Reserves(1) |  | Year      
|                                  |  |            |       |            |  |            |       |             |  |           
|Year ended 2001                   |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|Allowance for accounts receivable |  | $          | 1,760 |            |  | $          | 1,732 |             |  | $          | 169 |  |  | $ | (2,371 | ) |  | $ | 1,290 | 
|                                  |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|Year ended 2002                   |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|Allowance for accounts receivable |  | $          | 1,290 |            |  | $          | 744   |             |  | $          | 11  |  |  | $ | (973   | ) |  | $ | 1,072 | 
|                                  |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|Year ended 2003                   |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 
|Allowance for accounts receivable |  | $          | 1,072 |            |  | $          | 1,930 |             |  | $          | 17  |  |  | $ | (507   | ) |  | $ | 2,512 | 
|                                  |  |            |       |            |  |            |       |             |  |            |     |  |  |   |        |   |  |   |       | 

(1)Write-offs
of uncollectible accounts.

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##### Table of Contents






Item 9. Changes In and
Disagreements With Accountants on Accounting and Financial
Disclosures

None




Item 9A. Disclosure Controls and
Procedures

(a) Disclosure controls and procedures.Our chief executive officer and our chief financial officer,
after evaluating the effectiveness of our disclosure
controls and procedures (as defined in the Securities and
Exchange Act of 1934 Rules 13a-15(e) and 15-d-15(e)) as of
December 31, 2003, have concluded that, our disclosure
controls and procedures were effective and designed to ensure
that material information relating to Loral Orion and its
consolidated subsidiaries required to be in our filings under
the Securities and Exchange Act of 1934, would be made known to
them by others within those entities in a timely manner.

(b) Internal controls over financial
reporting.There were no significant changes in our internal
controls over financial reporting (as defined in the Securities
and Exchange Act of 1934 Rules 13a-15(f) and 15-d-15(f))
during the most recent fiscal quarter that we judge to have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




PART III




Item 10. Directors and Executive
Officers of the Registrant

Directors

The following sets forth information concerning
Loral Orions directors as of March 1, 2004.

|                     |  |                                                                                                                                                                                                                                                                                                      
|-------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bernard L. Schwartz  |  |                                                                                                                                                                                                                                                                                                      
|Age:                 |  | 78                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1998                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Schwartz is Chairman of the Board of
    Directors and Chief Executive Officer of the Company. He is also
    the Chairman of the Board of Directors and Chief Executive
    Officer of Loral Space & Communications Ltd.                                                                        
|Other Directorships: |  | First Data Corp., K&F Industries, Inc. and
    Satélites Mexicanos, S.A. de C.V. Trustee of NYU Medical
    Center and Health System, Thirteen/WNET Educational Broadcasting
    Corporation and the Baruch College Fund.                                                                            
|George Baker         |  |                                                                                                                                                                                                                                                                                                      
|Age:                 |  | 74                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1998                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Baker was President and Chief Executive
    Officer of Reliance Group Holdings Inc. and Reliance Insurance
    Company from 2000-2001. His principal business activity during
    the past five years has been serving as a Corporate
    Director/Advisor to various business enterprises.      
|Daniel Hirsch        |  |                                                                                                                                                                                                                                                                                                      
|Age:                 |  | 64                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 1998                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Hirsch is counsel to Carter
    Ledyard & Milburn LLP, a law firm in New York, N.Y. He
    was partner and chairman of the law firm of Jones Hirsch
    Conners & Bull P.C. from 1978-2000.                                                                                                      
|Avi Katz             |  |                                                                                                                                                                                                                                                                                                      
|Age:                 |  | 45                                                                                                                                                                                                                                                                                                   
|Director Since:      |  | 2002                                                                                                                                                                                                                                                                                                 
|Business Experience: |  | Mr. Katz has been Vice President and
    Secretary of the Company since February 2000. Previously, he was
    Vice President and Assistant Secretary of the Company since
    March 1998. Mr. Katz is also Vice President, General
    Counsel and Secretary of Loral Space & Communications
    Ltd.

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##### Table of Contents



|                     |  |                                                                                                                                                                                                                                                                                                                              
|-------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Eric J. Zahler       |  |                                                                                                                                                                                                                                                                                                                              
|Age:                 |  | 53                                                                                                                                                                                                                                                                                                                           
|Director Since:      |  | 1998                                                                                                                                                                                                                                                                                                                         
|Business Experience: |  | Mr. Zahler has been Executive Vice President
    of the Company since February 2000. Previously, he was Senior
    Vice President and Secretary since April 1999 and Vice President
    and Secretary since March 1998. Mr. Zahler is also
    President and Chief Operating Officer of Loral Space &
    Communications Ltd.
|Other Directorships: |  | Satélites Mexicanos, S.A. de C.V.                                                                                                                                                                                                                                                                                            

Executive Officers of the Registrant

The following table sets forth information
concerning the executive officers of Loral Orion as of
March 15, 2004.

|                     |  |     |    |          |  |                                                                                                                                                                                                                                                                                                                     
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Bernard L. Schwartz  |  |     | 78 |          |  | Chairman of the Board of Directors and Chief
    Executive Officer since March 1998. Mr. Schwartz is also
    Chairman of the Board of Directors and Chief Executive Officer
    of Loral Space & Communications Ltd.                                                                                               
|Terry J. Hart        |  |     | 57 |          |  | President since February 2002. Mr. Hart is
    also President of Loral Skynet and Vice President of Loral
    Space & Communications Ltd.                                                                                                                                                                           
|Richard J. Townsend  |  |     | 53 |          |  | Executive Vice President and Chief Financial
    Officer since May 2003. Prior to that, Senior Vice President and
    Chief Financial Officer since March 1999. Mr. Townsend is
    also Executive Vice President and Chief Financial Officer of
    Loral Space & Communications Ltd.                              
|Eric J. Zahler       |  |     | 53 |          |  | Director since March 1998 and Executive Vice
    President since February 2000. Prior to that, Senior Vice
    President and Secretary since April 1999 and Vice President and
    Secretary since March 1998. Mr. Zahler is also President
    and Chief Operating Officer of Loral Space &
    Communications Ltd.
|Avi Katz             |  |     | 45 |          |  | Director since April 2002 and Vice President and
    Secretary since February 2000. Prior to that, Vice President and
    Assistant Secretary since March 1998. Mr. Katz is also Vice
    President, General Counsel and Secretary of Loral
    Space & Communications Ltd.                                         
|Richard P. Mastoloni |  |     | 39 |          |  | Vice President and Treasurer since February 2002.
    Prior to that, Vice President and Assistant Treasurer since
    September 2001 and Assistant Treasurer since January 2001.
    Mr. Mastoloni is also Vice President and Treasurer of Loral
    Space & Communications Ltd.                                    
|Harvey B. Rein       |  |     | 50 |          |  | Vice President and Controller since March 1998.
    Mr. Rein is also Vice President and Controller of Loral
    Space & Communications Ltd.                                                                                                                                                                         
|Janet T. Yeung       |  |     | 39 |          |  | Vice President and Assistant Secretary since
    February 2000. Ms. Yeung is also Vice President, Deputy
    General Counsel and Assistant Secretary of Loral
    Space & Communications Ltd.                                                                                                                       

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##### Table of Contents






Item 11. Executive
Compensation

As of December 31, 2003, Loral Orion and its
subsidiaries had no employees. The executive officers of Loral
Orion are also executive officers of Loral or of Loral Skynet
and their salaries and compensation are borne by those entities.
Executive compensation of the above officers has been omitted.

Director Compensation

Directors are paid a fixed fee of $22,500 per
year. Non-employee directors are also paid $2,000 for personal
attendance or for telephone participation at each meeting.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

All of our outstanding common stock is owned,
directly or indirectly, by Loral Space & Communications
Corporation, a wholly owned subsidiary of Loral.






Item 13. Certain Relationships
and Related Transactions


Daniel Hirsch, a Director, is counsel to the law
firm of Carter, Ledyard & Milburn LLP, which acts as counsel
to the Company.

See Note 11 to the consolidated financial
statements for details on transactions between the Company and
Loral and its subsidiaries.






Item 14. Principal Accountant
Fees and Services


During 2003 and 2002, Deloitte & Touche LLP,
the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively, the Deloitte
Entities) provided the following services to the Company.

Audit Fees

The aggregate fees billed or expected to be
billed by the Deloitte Entities and allocated to us by Loral for
professional services rendered for the audit of the
Companys annual consolidated financial statements for the
fiscal years ended December 31, 2003 and 2002, for the
reviews of the condensed consolidated financial statements
included in the Companys Quarterly Reports on
Form 10-Q for the 2003 and 2002 fiscal years, and statutory
audits of the Companys subsidiaries and accounting
research and consultation related to the audits and reviews,
totaled approximately $303,000 and $121,000, respectively. The
prior years fees include an allocation of final additional
billings agreed to with respect to the fiscal 2002 audits.

Tax Fees

The aggregate fees billed by the Deloitte
Entities and allocated to Loral Orion by Loral for tax-related
services for the fiscal years ended December 31, 2003 and
2002 were $5,000 and $65,000, respectively. These fees related
to tax consultation and related services.

All Other Fees

The aggregate fees billed or expected to be
billed by the Deloitte Entities and allocated to Loral Orion by
Loral for services rendered to the Company, other than the
services described above under Audit Fees,
Audit-Related Fees and Tax Fees for the
fiscal years ended December 31, 2003, allocated by Loral
totaled approximately $277,000. These fees related primarily to
the Companys Chapter 11 filing and related filings
and activities.

In accordance with Lorals Audit Committee
charter, the Loral Audit Committee pre-approves all services
provided by the Deloitte Entities. These services are
pre-approved annually and updates are provided on a regular
basis. All services provided by the Deloitte Entities were
approved by the Loral Audit Committee.

55



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##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) 1. List of Financial Statements included
in Item 8:



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets 
    December 31, 2003 and 2002                                                    
|
| | Consolidated Statements of Operations 
    Years ended December 31, 2003, 2002 and 2001.                       
|
| | Consolidated Statements of Stockholders
    (Deficit) Equity  Years ended December 31, 2003,
    2002 and 2001
|
| | Consolidated Statements of Cash Flows 
    Years ended December 31, 2003, 2002 and 2001                        
|
| | Notes to Consolidated Financial Statements                                                                      

(a) 2. List of Financial Statement Schedules
included in Item 8



| |                                                          
| | ---------------------------------------------------------
| | Independent Auditors Report on Supplemental
    Schedule
|
| | Schedule II                                              

(a) 3. Exhibits

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##### Table of Contents






INDEX TO EXHIBITS

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 2.1   |             |  | Agreement and Plan of Merger, dated as of
    October 7, 1997, by and among Orion, Loral and Loral
    Satellite Corporation. (Incorporated by reference to exhibit
    number  2.1 in Current Report on Form 8-K dated
    October 9, 1997.)                                                                                  
|        | 2.1.1 |             |  | Amendment No. 1 Agreement and Plan of
    Merger, dated as of February 11, 1998, by and among Orion,
    Loral and Loral Satellite Corporation. (Incorporated by
    reference to exhibit number 2.2 in Registration Statement
    No. 333-46407 on Form S-4.)                                                                  
|        | 2.2   |             |  | Principal Stockholder Agreement among Orion,
    Loral, Loral Satellite Corporation and the stockholders that are
    signatories thereto, dated as of October 7, 1997.
    (Incorporated by reference to exhibit number 2.2 in Current
    Report on Form 8-K dated October 9, 1997.)                                          
|        | 2.2.1 |             |  | Amendment No. 1 to Principal Stockholder
    Agreement among Orion, Loral, Loral Satellite Corporation and
    the stockholders that are signatories thereto, dated as of
    December 1, 1997. (Incorporated by reference to exhibit
    number 2.4 in Annual Report on Form 10-K for fiscal
    year ended December 31, 1997.)
|        | 3.1   |             |  | Certificate of Merger of Loral Satellite
    Corporation into Orion, dated March 20, 1998, and
    Exhibit A thereto, Restated Certificate of Incorporation of
    the Company. (Incorporated by reference to exhibit
    number 3.1 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 1998.)            
|        | 3.2   |             |  | Certificate of Merger of Loral CyberStar, Inc.
    into Loral Orion Services, Inc. (Incorporated by reference to
    exhibit number 3.2 in Annual Report on Form 10-K for
    the fiscal year ended December 31, 2000.)                                                                                                         
|        | 3.3   |             |  | Merger Agreement between Loral CyberStar, Inc.
    and Loral Orion Services, Inc. (Incorporated by reference to
    exhibit number 3.3 in Annual Report on Form 10-K for
    the fiscal year ended December 31, 2000.)                                                                                                          
|        | 3.4   |             |  | Amended and Restated Certificate of Incorporation
    of the Company. (Incorporated by reference to exhibit
    number 3.4 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 2001.)                                                                                                                      
|        | 3.5   |             |  | Amended and Restated Certificate of Incorporation
    of the Company. (Incorporated by reference to exhibit
    number 3.5 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 2001.)                                                                                                                      
|        | 3.6   |             |  | Amended and Restated certificate of Incorporation
    of the Company dated March 8, 2004.                                                                                                                                                                                                                                      
|        | 4.1   |             |  | Form of Senior Note Indenture and Form of Note
    included therein. (Incorporated by reference to exhibit
    number 4.1 to Registration Statement No. 333-19167 on
    Form S-1.)                                                                                                                                             
|        | 4.1.1 |             |  | Supplemental Indenture, dated as of
    December 21, 2001, to the Senior Note Indenture, dated
    January 31, 1997. (Incorporated by reference to exhibit
    number 99.7 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                         
|        | 4.2   |             |  | Form of Senior Discount Note Indenture and Form
    of Note included therein. (Incorporated by reference to exhibit
    number 4.2 to Registration Statement No. 333-19167 on
    Form S-1.)                                                                                                                                    
|        | 4.2.1 |             |  | Supplemental Indenture, dated as of
    December 21, 2001, to the Senior Discount Note Indenture,
    dated January 31, 1997. (Incorporated by reference to
    exhibit number 99.8 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                                
|        | 4.3   |             |  | Form of Collateral Pledge and Security Agreement.
    (Incorporated by reference to exhibit number 4.3 to Registration
    Statement No. 333-19167 on Form S-1.)                                                                                                                                                                
|        | 4.4   |             |  | Indenture, dated as of December 21, 2001, by
    and among the Company, certain of its subsidiaries and Bankers
    Trust Company, as Trustee. (Incorporated by reference to exhibit
    number 99.5 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                               

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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.1  |             |  | Second Amended and Restated Purchase Agreement,
    dated September 26, 1991 (Satellite Contract)
    by and between Loral Orion Services, Inc. (formerly known as
    Orion Satellite Corporation) and British Aerospace PLC and the
    First Amendment, dated as of September 15, 1992, Second
    Amendment, dated as of November 9, 1992, Third Amendment,
    dated as of March 12, 1993, Fourth Amendment, dated as of
    April 15, 1993, Fifth Amendment, dated as of
    September 22, 1993, Sixth Amendment, dated as of
    April 6, 1994, Seventh Amendment, dated as of
    August 9, 1994, Eighth Amendment, dated as of
    December 8, 1994, and Amendment No. 9 dated
    October 24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN
    GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by
    reference to exhibits number 10.13 and 10.14 in
    Registration Statement No. 33-80518 on Form S-1).
|        | 10.2  |             |  | Restated Amendment No. 10, dated
    December 10, 1996, between Loral Orion Services, Inc. and
    Matra Marconi Space to the Second Amended and Restated Purchase
    Agreement, dated September 16, 1991 by and between
    OrionServ and British Aerospace PLC (which contract and prior
    exhibits thereto were incorporated by reference as exhibit
    number 10.1). (Incorporated by reference to exhibit
    number 10.2 in Registration Statement No. 333-19795 on
    Form S-4.)                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.3  |             |  | Contract for a Satellite Control System, dated
    December 7, 1992, by and between Loral Orion Services,
    Inc., Telespazio S.p.A. and Martin Marietta Corporation.
    [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
    DOCUMENT.] (Incorporated by reference to exhibit
    number 10.31 in Registration Statement No. 33-80518 on
    Form S-1.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.4  |             |  | Restated Definitive Agreement, dated
    October 29, 1998, by and between Orion and Republic of the
    Marshall Islands. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
    PORTIONS OF THIS DOCUMENT.](Incorporated by reference to exhibit
    number 10.12 in Annual Report on Form 10-K for the
    fiscal year ended December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.5  |             |  | Orion 3 Spacecraft Purchase Contract, dated
    January 15, 1997, by and among Hughes Space and
    Communications International, Inc., Loral Orion Services, Inc.
    (by assignment from Loral Orion-Asia Pacific, Inc., formerly
    known as Orion Asia Pacific Corporation) and Orion.
    [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS
    DOCUMENT.]. (Incorporated by reference to exhibit
    number 10.52 to Registration Statement No. 333-19167
    on Form S-1.)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.6  |             |  | Orion-Z Spacecraft Purchase Contract, dated
    May 15, 1998, by and between Loral Orion Services, Inc. and
    Space Systems/ Loral, Inc. and Amendment No. 1 dated
    December 29, 1998. [CONFIDENTIAL TREATMENT HAS BEEN
    REQUESTED FOR PORTIONS OF THIS DOCUMENT.](Incorporated by
    reference to exhibit number 10.17 in Annual Report on
    Form 10-K for the fiscal year ended December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.7  |             |  | Agreement, dated January 1, 1999, by and
    between Loral Orion Services, Inc. and Loral Skynet.
    (Incorporated by reference to exhibit number 10.18 in Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.8  |             |  | Agreement, dated January 1, 1999, by and
    between Loral Orion Services, Inc. and Loral Skynet.
    (Incorporated by reference to exhibit number 10.19 in
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 1998.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.9  |             |  | Lease Agreement, dated as of August 18,
    1999, by and between Loral Asia Pacific Satellite
    (HK) Limited and APT Satellite Company Limited.
    (Incorporated by reference to exhibit number 99.1 to
    Current Report on Form 8-K filed on August 23, 1999.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.10 |             |  | Lock-up Agreement, dated as of October 15,
    2001, by and among the Company, Loral Space & Communications
    Ltd., Loral SpaceCom Corporation and certain holders of the
    Companys 11 1/4% Senior Notes due 2007 and its
    12 1/2% Senior Discount Notes due 2007. (Incorporated by
    reference to exhibit number 10.1 to Current Report on
    Form 8-K filed on November 16, 2001.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|        |       |             |  |                                                                                                                                                                                                                                                                                                                            
|------- | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.11 |             |  | Asset Purchase Agreement, dated as of
    December 21, 2001, between the Company and Loral CyberStar
    Data Services Corporation. (Incorporated by reference to exhibit
    number 99.1 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                                     
|        | 10.12 |             |  | $29.7 million aggregate principal amount,
    10% Subordinated Note due 2006, made by the Company and issued
    to Loral SpaceCom Corporation. (Incorporated by reference to
    exhibit number 99.3 to Current Report on Form 8-K
    filed on January 7, 2002.)                                                         
|        | 10.13 |             |  | Subordinated Guaranty Agreement, dated as of
    December 21, 2001, between Loral Space & Communications
    Ltd. and Loral SpaceCom Corporation with respect to the 10%
    Subordinated Note due 2006. (Incorporated by reference to
    exhibit number 99.4 to Current Report on Form 8-K
    filed on January 7, 2002.)
|        | 10.14 |             |  | Warrant Agreement, dated as of December 21,
    2001, between Loral Space & Communications Ltd. and The Bank
    of New York, as Warrant Agent. (Incorporated by reference to
    exhibit number 99.6 to Current Report on Form 8-K
    filed on January 7, 2002.)                                                         
|        | 10.15 |             |  | Guaranty Agreement, dated as of December 21,
    2001, between Loral Space & Communications Ltd. and Bankers
    Trust Company, as Trustee. (Incorporated by reference to exhibit
    number 99.9 to Current Report on Form 8-K filed on
    January 7, 2002.)                                                             
|        | 10.16 |             |  | Form of Conformed as Amended Apstar V
    Satellite Agreement dated as of November 16, 2003 between
    APT Satellite Company Limited and Loral Orion, Inc.                                                                                                                                                               
|        | 12    |             |  | Refinancing of earnings to cover fixed
    charges                                                                                                                                                                                                                                                                        
|        | 21    |             |  | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                    
|        | 31.1  |             |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|        | 31.2  |             |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|        | 32.1  |             |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|        | 32.2  |             |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. § 1350, as adopted pursuant to
    § 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             



---



|  |                
|- | ---------------
| | Filed herewith.

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(b) Reports on Form 8-K filed in the
fourth quarter of 2003

|                  |  |                                                                                                                       |  |                                                                                                                                                                                                                                        
|----------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date of Report    |  |                                                                                                                       |  | Description                                                                                                                                                                                                                            
|                  |  |                                                                                                                       |  |                                                                                                                                                                                                                                        
|October 9, 2003   |  | Item 7  Financial Statements, Pro
    Forma Financial Information and Exhibits
    Item 9  Regulation FD Disclosure |  | Monthly Operating Report for the Period of
    July 15, 2003 through August 22, 2003 as filed with
    the U.S. Bankruptcy Court for the Southern District of New
    York                                                             
|November 17, 2003 |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Monthly Operating Report for the Period of
    August 23, 2003 through September 30, 2003 as filed
    with the U.S. Bankruptcy Court for the Southern District of New
    York                                                        
|December 8, 2003  |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Monthly Operating Report for the Period of
    October 1, 2003 through October 24, 2003 as filed with
    the U.S. Bankruptcy Court for the Southern District of New York                                                              
|December 18, 2003 |  | Item 9  Regulation FD
    Disclosure                                                                                 |  | Amended Monthly Operating Reports for the Periods
    of July 15, 2003 through August 22, 2003 and
    August 23, 2003 through September 30, 2003 as filed
    with the U.S. Bankruptcy Court for the Southern District of New
    York

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                  
| | -----------------
| | LORAL ORION, INC.



| |     |                                 
| | --- | --------------------------------
| | By: | /s/      BERNARD L.
    SCHWARTZ

| |                          
| | -------------------------
| |                          
| | Bernard L. Schwartz      
| | Chairman of the Board and
| | Chief Executive Officer  
| | Dated: March 15, 2004    

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                                                   |  |                                                                                     |  |               
|------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------- |  | --------------
|Signature                                                          |  | Title                                                                               |  | Date          
|                                                                   |  |                                                                                     |  |               
|                                                                  
|/s/      BERNARD L.
    SCHWARTZ           Bernard
    L. Schwartz |  | Chairman of the Board and Chief Executive Officer                                   |  | March 15, 2004
|                                                                  
|/s/      ERIC J.
    ZAHLER           Eric
    J. Zahler           |  | Director and Executive Vice President                                               |  | March 15, 2004
|                                                                  
|/s/      AVI KATZ           Avi
    Katz                           |  | Director, Vice President and Secretary                                              |  | March 15, 2004
|                                                                  
|/s/      GEORGE BAKER           George
    Baker                   |  | Director                                                                            |  | March 15, 2004
|                                                                  
|/s/      DANIEL
    HIRSCH           Daniel
    Hirsch             |  | Director                                                                            |  | March 15, 2004
|                                                                  
|/s/      RICHARD J.
    TOWNSEND           Richard
    J. Townsend |  | Senior Vice President and Chief Financial Officer
    (Principal Financial Officer) |  | March 15, 2004
|                                                                  
|/s/      HARVEY B.
    REIN           Harvey
    B. Rein           |  | Vice President and Controller (Principal
    Accounting Officer)                    |  | March 15, 2004

61